There are often times in life that we position for an eventuality that we would much rather did not happen.
For instance every year I position for my house and all of my possessions being damaged or even destroyed, for myself to have minor and/or major health events, for my car to damage another person or property, and even for me to become disabled or die.
Of course we know these particular positions – or risk management tools – as insurance, and these specifically related to financial risk management for us and our loved-ones.
We do other risk management to minimise the consequences if we should make an error or just simply end up on the wrong side of the probability equation (we like to call it bad luck).
It is within this context that I have made a major portfolio readjustment this week. I hope that these investments do not pay off significantly, but I am concerned that they will. This positioning revolves around the threat of the Wuhan coronavirus to society and to global commerce and markets.
I made my sombre views clear on my website in my post “Social Cohesion: The Best Vaccine Against Crises“.
At end of January I was positioned at about 20% in domestic equities and 10% international equities (having made about 10% on the tactical portfolio shift to a higher weighting in September I reduced in December), 25% gold hedged and unhedged (so exposed to USD also), 10% USD ETF, remainder (35%) in cash.
My cash weighting has now been reduced to less than 10% as I have made significant investments into some of the largest pharmaceutical and medical equipment companies in the world (all European and US domiciled so out of AUD), and a few small, more speculative biotechs with promising technology which has already been identified, who will be heavily involved in a mass global effort to respond to the global Wuhan coronavirus threat.
I had also been considering making an investment into Euro hedged gold to protect our purchasing power in Europe and specifically Italy where we intend to spend time during our retirement. With my concerns about the impact of this virus on the global economy I proceeded with this position with a bounce in AUDEUR (to .61) and pull back in gold (to $1550) on the back of delusional optimism (and co-ordinated buying by multiple “national teams”?).
This is one investment strategy that I sincerely hope does not pay off significantly, but I must invest with my brain and not heart. The quality of the companies should ensure that, even if my positioning proves unnecessary, they should still retain value and quite likely benefit from a continuation of the bull market and a renewed realisation of how vital this research is to humanity.
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© Copyright Brett Edgerton 2020