Coming close to the end of the year and underperforming the HSI recently makes me feel extremely pressured. My returns have taken a dive because my core holdings have been underperforming, while the small holdings cannot compensate for the slow downdrift of my core positions. What is the point of active investment management when you can’t even beat the market? You might as well just put them in an index fund and be a beach bum or something. On a positive note, HSI is not really the only market I should compare with. I do not see much resemblance of the constituents of the HSI with my companies. I think I should compare it with the Hong Kong China Enterprises Index which is up 7% YTD, and the Shanghai Composite Index down 9% YTD.
But still, this year had been a terribly slow year for me. My returns should be close to the 50% long term yearly average that I aim for. I believe I made some very costly allocation mistakes early in 1Q and 3Q. If I could improve my capital allocation skills, it would set myself on a complete new level, i.e. above everyone else. I could easily achieve 20% to 50% greater existing returns because of my uncanny ability to allocate capital far more efficiently than any fund managers or businessmen.
Safety above all else, capital allocation requires a unique taste of the markets and weights. This ability to sniff out well timed investments requires immense studies of various industries and companies. The ability to draw out causal relationships of apparently disjointed events will prove to be one of the greatest assets of capital allocation efficiency. By weights it means the proportion of holdings of companies in the portfolio, which requires an artful approach supported by the fund manager’s market tastes. This needs not to be exact, but a sharp sense of direction will prove to be the greatest difference between a mediocre or exceptional manager. Of course, being an exceptional analyst will help instil confidence in weights.