What I'd hear if a finance guru took a look at my portfolio

1. You have Way too many holdings

2. Your biggest pos is Way too big

3. You don't have enough OS exposure

4. You don't have enough cash

5. You have too many Illiquid shitcos

6. Why the fu*k do you own 1 $ZNO share?

I posted this on twitter just for a laugh, but got a few questions so thought I would answer them. Bear in mind my real portfolio looks bit different to my Strawman one.

1.You know those people who say it’s a good opportunity but it’s too liquid and I can’t buy enough. Well, that’s not me. Value is value and Alpha is alpha. I’m not going to pass up a great buy simple because I can only get a fraction of what I want or because my portfolio will look messy. Other advantages are you will keep a close eye on your holding and have a better chance of spotting any liquidity that does appear. You will also be able to participate in any SPP or rights issue.

2.The largest wealth is made making big bets. If a truly incredible opportunity falls into my lap, with a risk reward proposition I may rarely see again, then IMO it makes sense to red line it. Take the max risk I can, without risking irreparable damage.

3.Yes, I have home country bias, but I have a clear edge here which I understand. I think the ASX in particular is a very soft and inefficient market. I am not prepared to give that up in part, to play in markets I understand less against stronger competition and bleed money in currency exchange, simply so I can have a more diversified and globally aligned portfolio.  

4.I think most people underestimate the drag of a large cash position. Having dry powder sounds responsible and prudent but I think in most cases it’s a net negative. I get a chuckle when I hear value managers staunchly say timing the market doesn’t work, but in the same breath say we have 30% cash because we can’t find enough cheap opportunities. The index they are comparing themselves to is 100% invested. If you have a cash weighting any higher than you need then you are inadvertently trying to time the market. I would rather remain close to fully invested and if things are expensive just be in the cheapest names relatively at the time. There is a cost to hold the cash and then when a serious crash eventually happens, it’s fairly likely you will put all that cash to work too early.

Staying fully invested is not to say I would do nothing. If volatility appears out of nowhere, I often try and quickly snap sell some high beta names for cash that I can then try and roll into names that get beaten down. Or if I was truly nervous like Feb/March 2020, I may put some temporary index shorts on.

5.Yes, I do, but they aren’t really shitcos, they are solid companies which just happen to be Illiquid lobster pots. I take a basket approach of lots of smaller positions to somewhat negate the illiquidity risk. Which is another reason I end up with lots of positions.

6.Good question, haha.