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Hitting my 100th blog post (hence the title!) in late June, I thought I’d celebrate with a more in-depth series looking at my portfolio construction (i.e. approach to stock-picking), allocation & valuation metrics. Part I briefly revisited (plenty of other commentary recently) my stock-picking approach, and then tackled currency allocation – a surprising introduction for some readers, perhaps!? I suspect it was also my most footnoted post ever…aah, those were fun! Part II touched on the risk of home-bias, and then reviewed my portfolio investment allocations from an overhead perspective.

Part III would logically have continued with a drill-down into these allocations… But I’d just updated a few missing figures in my valuation & analysis file(s), so I opted to first share some detailed portfolio valuation (& performance) metrics. I was actually surprised not to see greater feedback on this post – I don’t think I’ve seen many (any?) analyses of this sort across the web. Anybody out there fancy doing something similar? – I’d love to see it 🙂

So now, as promised with Part IV (and more?!), I’ll finish the series by taking you ‘through each of my investment allocations – and try to give a flavour of my thinking, and some underlying stocks/funds, in each instance.’ It’s worth repeating my investment allocation pie-chart here first, for reference:

You’ll immediately see I don’t much care for regular benchmarking! The UK‘s at 3%, no Japan, no Europe…how on earth can he have no US exposure?! And what the hell’s this 16% Ireland exposure..?!

Actually, zero US exposure isn’t quite true. But the US stocks I own, for example, are actually allocated to a different investment allocation (or theme), which I considered more relevant than geographic listing/location, in each instance. [Note: Allocating on a thematic basis is an excellent idea, but I recommend you don’t let it entirely dictate your perspective. Keeping an eye also (which I do) on allocations on a geographical listing/location basis is still of secondary importance].

Don’t be fooled either by the apparent fact my pure equity exposure accounts for less than half my portfolio. Yes, the major portion of my portfolio’s invested in what are usually termed alternative assets. Long term, I believe these assets can offer higher rewards and/or lower risk, and promise a more diversified/less correlated portfolio. But, in reality, this investment exposure is basically achieved via equities – i.e. stocks/funds. This means I may get a specific alternative asset thesis dead right, but still suffer significant near/medium-term pain & loss if equity markets deteriorate meaningfully.

Right, let’s begin our journey through these investment allocations:

UK (3%):   One of my biggest portfolio problems: I always seem to have a stack of new stocks & investment ideas lined up – another reason not to fool around with stock-screeners..! But you have to balance this with a sane number of portfolio holdings – for tracking purposes and, more importantly, since your best ideas need to be expressed via meaningful portfolio stakes (or you’re simply wasting your time…).

Rationing is the only sensible answer – a rather painful (and never-ending!) relative analysis & ranking exercise to ensure all choices are considered…before actually making a choice! But a distinct preference for alternative assets, plus emerging/frontier markets, doesn’t bode well for my allocation to developed markets..! Couple that with a disregard for benchmarks (in the end, I answer to myself!), and the pie-chart should begin to make more sense. Despite that, I’m a little ashamed of my current UK allocation (really just a couple of undisclosed toe-hold stakes). Why? Well, I recently wrote v positively about GBP and, for the same basic reason(s), the UK’s a great bet on Europe!

Of course, you first have to decide if you actually want to bet on Europe..!? But, presuming you do, how do you go about it exactly? Sure, European valuations are cheap, but how’s the growth outlook shaping up? Well, it’s not..! [And btw: Is the US really a better proposition?! Perhaps its current growth & outlook look better right now – but that’s down to the ‘juice‘ in the system, and it’s offered at a much higher valuation anyway]. So buying a European index/fund is a real leap of faith right now. A valid alternative is to hunt for deep value opportunities in selected markets – that’s a perfectly sound strategy, and will appeal to certain investors. But for many readers, I’d argue that buying UK stocks is perhaps the most sensible/least stressful bets available on Europe.

Let’s think about it:  First, UK valuations are similar to average European valuations, so no issue there. Second, the UK’s in the EU, and obviously pretty integrated – if things turn out OK/better than expected in Europe, the UK stands to benefit just as much. And third, if Europe does end up even deeper dans la merde… Well, the UK’s got a v independent currency & monetary policy, a vibrant export sector, and a v relaxed attitude to inward (& outward) investment/M&A – all of which it can harness to save it from Eurogeddon! Don’t underestimate these – the lack of most/all these attributes is what makes quite a few European countries look so doomed

This skewing of the UK risk/reward proposition (in a European context) is exactly what I like to see!

To be continued.