Investing knowledge- Sun Tzu's Art of War

Investment is NOT just entrusting your assets to a financial institution or a financial consultant. It is definitely more than that. Investment is like planning, preparing and going for War. If you made money during the bull market, that’s luck. Otherwise, we all know the consequences.

You may probably know the following, but I just like to summarize for the benefit of doubt for those who are not investment savvy. You ought to know

·         Yourself (risk profile)

·         Your enemy (investment risk, currency risk, default risk, etc)

·         Your terrain (investment choices)

·         The weather (global mentality, financial markets)

What most financial adviser(s) do is probably profile your risk into categories you fall into by asking you a set of questions. You may fall into categories like being Very Conservative, Conservative, Moderate, Aggressive or very Aggressive. That’s it.

After which they make a recommendation based on your risk profile. (The obvious is that disaster will follow, the war that had not begun is lost). The fact the above is emphasized is that different categories of risk can absorb the degree of risk and volatility of the market. Not to make money.

The following are NOT expected of the consultant. However, some consultants go the extra mile.

·         What about investment risk, for e.g. a Unit trust invested in US dollars or Euro, Yen or the Aussie? Yield is less than foreign exchange?

·         What about terrain (choices), for e.g. narrowly focus, country. Why recommend Fund Manager A and not Fund Manager T or LG or LM? Diversification and Asset Allocation

·         What about the weather (financial climate), for e.g. commodities, currencies, monetary policies, global sentiment, etc. For e.g. No matter how reasonable the PE or PB ratio is for the whole of 2008, what were the consequences? The war is already lost before it began.

Bearish sentiment (during the Lehman crisis) - Would the recommendation for an investor with a Very aggressive profile fit during the period? The recommendation is NOT wrong, however, you be the judge of the consequences.

Bullish sentiment (during the expansion of Quantitative Easing 1 (QE1), March 2009) - Would the recommendation for an investor with a Very Conservative profile ft during the period? The recommendation is NOT wrong, however, you be the judge of the consequences.

Without the consultant going the extra mile to provide (three of) the above services, how could he be prepard to go for War? I can undertsand now why in Ancient Times, the Chinese would like to get hold of the scroll on the Art of War. It can be well practised in Investment!

If you agree with my personal opinion, before you make (or next review your investment portfolio) your investment purchase, be equipped with the above.

It would be wise to identify/find a General (financial consultant who may provide extra mileage) to assist in making the recommendation. Timing in all cases is not possible in the ever changing financial climate. No one can foresee the future unless he claims he has a crystal ball.

Some tips in monitoring/managing your investment. At the present moment, you need to know what

·         Quantitative Easing (QE1 and QE2) is all about

·         Consequences and Unwinding of QE2

·         Carry trades?  Commodity currencies (currency fluctuations)

·         Commodities (Agricultural and Metal, etc) these would affect equity related commodity and precious metals)

·         Monetary policies (For e.g. raising of interest rate in India and its consequences)

·         Interest rate differentials (for e.g. US dollar and Euro or the Aussie)

·         (Not an exhaust list)

What is being equipped for War?

Having an operational centre where the General has timely and constant monitoring system, the General should have a properly drawn “Art of War’ strategy to combat the ever changing financial climate, coupled with probably an investment platform that offers a wide range of equipments.

For the financial consultant, go the extra mile to provide the service and differentiate yourself.

For the investor, go the extra mile to identify financial consultants who go the extra mile.

Are you ready to go for War?