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Have You “Truly” Diversified Your Portfolio?
Malaysia Perspective | 23 April 2013
By:

By Jonathan Quek

While reading the ‘haircut’ news in Cyprus, I was reminded of the traditional teaching that is preached by most financial planners, insurance agents and unit trust agents. For years, they have been reminding the public with the phrase “Not to put all your eggs in one basket”. Hence, you need diversification.

When it comes to the subject of diversification, they normally begin by introducing the concept of unit trusts. A Unit trust is a fund that invests in 30 – 50 stocks across the nation; depending on which category it is in. So if one company’s stock takes a hit, theoretically there will be others that will go up. Does it make any sense to you? Of course, the more spread out you are, the more protected you are from losing money!

Diversification Or “Di-worse”-ification
I love Warren Buffett for one of his particular quotes, “Wide diversification is only required when investors do not understand what they are doing.” I don’t know about you but I personally interpret it as diversification without a strategy simply means protection against ignorance. It’s just like playing a game hoping not to lose. Think about it… If there are 2 fighters fighting in an arena, who do you think will have the higher chances of winning?

A fighter who fights not to lose or a fighter who fights to win?” For sure, you know the answer to that question.

Warren Buffett believes that diversification is for amateurs. Unfortunately, this is not the message that you will hear from financial ‘professionals’ whom you may consult regarding matters of investments.

Diversified! Really?
Well, probably you have already diversified your funds in fixed deposits, some unit trusts and some good banking stocks. So you might think that you are well diversified.

If you think so, do think again!

Think about this point – Now that Cyprus is hit with a major financial Tsunami, the country is going bankrupt and it is seeking help from the European Union, the European Central Bank & the International Monetary Fund. At this point of time, we still do not know the outcome of what’s going to happen yet, so I’m just going to play a guessing game here.

Now that we know that the country is broke and the Government is taking the people’s money from the bank. Imagine if you would have diversified your fixed deposits into 5 different banks, do you think your fixed deposits would be affected?

Now that the banks are facing crisis, the value of the bank’s share is plummeting. Imagine if you would have diversified into 5 different bank’s shares, do you think your shares would be affected?

Now that the share prices are crashing, you might have invested into several local equities funds as well. Do you think the prices of your unit trust would be affected?

So what is the problem here? The problem is whatever you have invested in, is still on paper. It is based on the same fragile economy and the same investment model. When stock market crashes, it goes down everywhere. Investing in Maybank, RHB, Public Bank, Alliance Bank or CIMB won’t make any difference because it’s the same business model.

True Diversification
True diversification means investing across different asset classes, not different stocks or banks.

If there is a crash in the property market, it doesn’t really matter if you have invested in condos, bungalows, or shop-houses. Your property portfolio might look diverse but they are all still in real estate asset class.

Some of my clients in SilverMalaysia.com buy US Silver Eagle, Canadian Maple Leaf, Scottsdale Bars and they are proud that their portfolio looks diverse. Like it or not, they are all still gold & silver bullions. They belong to the precious metals asset class.

As an investor who believes in true diversification, I have real estate assets, commodities assets like gold, silver & oil, business assets like my company’s shares and yes, paper assets like shares in the stock market. True diversification requires you to understand the economic lifecycle. Even if the banks fail in my country, I do not have much concern because I do not hold too much paper money. I’ve converted most of these fiat currencies into gold and silver. I diversify into gold and silver because the precious metals have been the true measures of wealth for thousand of years. If you studied history, you will see time and time again, the fiat currency collapsing and this system is one that is designed to fail.

Are You Ready For The Upcoming Financial Tsunami?
When Japan’s interest rates on savings plummeted to barely above zero percent, people around the world said, “That will never happen here!” Now this incredible phenomenon is happening in Europe and the United States. Now, people around the world are just beginning to talk about Cyprus’ government confiscating large portions of its citizens’ savings account.

Before the large Tsunami struck Sri Lanka in Year 2004, quite a number of animals began to act strangely and were seeking cover. Elephants were making noises and ran for higher ground. Dogs refused to go outdoors. Flamingos abandoned their low-lying breeding areas. Zoo animals rushed into their shelters and could not be enticed to come back out.

God is always fair. He will always warn us of a major disaster before it officially occurs.

Over the past few years, there have been warnings again and again showing that the financial system that we are living on right now has done damage to itself that it will never be able to repair. As bankrupt nations and banks continue to spiral downwards, there will be more and more desperate attempts happening. You have seen these warnings and the choice is now yours. Will you sit back, do nothing, and allow your wealth to be wiped out by the coming financial Tsunami or would you be the smarter one, by increasing your financial intelligence to understand the fraudulent monetary system to take opportunity of the greatest wealth transfer in history?

The choice is yours.

About the Author
Jonathan Quek is the author of the best-selling book ‘Why Gold? Why Silver? Why Now?’ Jonathan is also the founder of SilverMalaysia.com, an online gold and silver education company that provides retails of physical silver at competitive price.

To learn more about silver, go to www.SilverMalaysia.com to download a free ‘Silver Investors Starter Kit’ e-book or register for our complimentary educational seminars.


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The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

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