Managing your assets in turbulent times

We have encountered a convergence of various issues. Oil prices have surged to the highest level in modern history. Financial markets were hit with another blow - the credit cri¬sis brought on by the subprime mortgage collapse, which dwarfed even the famous 80s junkbond debacle. These two events brought about two situations that handed most of us a harder life - swift changes in both the quantity and price of staple goods, and volatile interest rates and currencies.

So let us take this opportunity to examine if we carefully manage our wellearned assets. They can be financial or nonfinancial assets, but here I will focus more on the financial ones.

1. Do you diversify well? The cliche about not putting all your eggs in one basket is quoted more often these days. However, in practical terms, it is one of the most difficult things to heed, as to put it simply, we are often too greedy. Let's take a good example of the famous carry trade position. While New Zealand dol¬lars used to, and still do, offer one of the greatest returns among the freely convertible currencies, people may tend to forget that they are taking a high foreignexchange risk. It is difficult for many investors to turn their back on an 8percent yield. However, most of the time they will lose out, partially or com¬pletely, from foreignexchange losses. A welldiversified portfolio can be constructed and give you a moderate return of 4 to 5 per cent with much less foreignexchange risk. Unfortunately, the concept is not popular among investors, possibly because there are no fund managers selling it.

2. Do you mark to market? Marking to market is like going for your physical checkup. It reflects your financial health which, if performed regularly, will give you timely notice, good or bad, of actions that are necessary. In reality, however, many people do it only when the portfolio is in the money. They tend to forget it when the portfolio submerges.

3. Are you ahead of your peers? This needs considerable courage. Most of us follow others, which is in fact not bad if you are not the last in line. Being ahead is not easy. However, you must do it, and though it might be difficult at the begin¬ning, over time it will get better. A good trader will react half a step before his friends. One full step might be going too far, which might lead to getting in too soon or getting out too late.

4. Are you overly informed? Getting more information is good. However, an overwhelming amount of information may make you perplexed - a situation in which you cannot make any decisions. This is common among green traders. The way to solve this problem is not to cut down on the information flow but to focus on the objective.

Additionally, use an "assistant". For instance, if you are overwhelmed with all the bad news and do not know what to do with your money, first, focus on your objective for investing in the stock market. Look at your stock universe. Draw a line to limit your investment framework. Second, you may take a look at a technical analysis of your chosen stocks. Technical analysis, as an assistant, is a good tool to help the level and timing of your entries or exits or both.

By applying these four rules you should be ready for this volatile situation and be able to take good care of your assets. A good portfolio might not make you rich quickly. However, it will help you sleep well.

SATIAN TANTANASARIT is TMB Bank's executive vice president. The article is the author's view.