In fund management, making money in a bull market is only half of the job. The other half is preserving the gains during a market downturn.
However, there may not always be clear signs that the market is peaking out. Like in the current market, there is no obvious threat to the bullish trend, so as fund managers, we can go with the flow while staying alert for alarm bells.
Other than special situations like what happened during the 2008 financial crisis, when there was a systemic meltdown and almost all stocks went south, investors usually can prepare well for a crisis by constantly rebalancing their portfolios.
The basic idea of rebalancing is to switch to stocks that offer better value.
For example, I survived the 2000 internet bubble by getting out of dot.com shares and moving the funds into small and mid-cap Hong Kong stocks.
Then in 2015, I sold bubbly Hong Kong and Chinese counters and switched to US equities.
This time, I have been putting more funds into European and Japanese equities, rather than keep chasing the stock rally in the United States and Hong Kong.
Such strategy may sacrifice short-term gains but a properly balanced portfolio is the best way to beat the market in the long run.
This article appeared in the Hong Kong Economic Journal on Jan 16
Translation by Julie Zhu
[Chinese version 中文版]
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