Invest With Your Head Not Your Heart

investment risk management financial markets

Emotion, not reason, is the main driver of financial markets. Heightened fears over the Covid pandemic and inflation, for example, have triggered extreme market volatility and excessive speculation in cryptocurrency. Amid such turmoil of recent months, we have remained grounded and focused on the basics.

Our track record is commendable. By following our expert guidance, not a single investor with Eu Capital has lost money since our founding. Our returns are absolute, not benchmarked against an index. We neither leverage nor employ any form of financial derivative. During the last five years, we have doubled the money of some clients. Some people may demand higher expectations. They may point out a hedge fund with a 300% annual return, for example, or expect high returns every year. But the former is an isolated comparison and the latter is unrealistic.

We do not guarantee a fixed monthly or annual return. Besides the market’s direction, a client’s own investment behaviour and financial needs can impact returns significantly. Consider timing. A portfolio performance of a client who started with us in October 2018 won’t match another who bravely invested with us two months later after markets fell 25%. Cash flow may be another differential. The most effective strategy for long-term wealth is to invest more annually and to temper selling. Investors who constantly reduce their holdings cannot expect outsized performance every year with smaller assets.

Making More with Less Risk

Risk management is our cornerstone. We take calculated risk depending on its risk/reward metric. Our investment screening is a robust process of identifying, researching, evaluating and planning. The result is an overweighted allocation on equities that are actually less risky than some bonds.

In theory, someone can mimic our stock purchases. But the axiom “investing is simple, but not easy” always rings true. Imitating us may produce short-term profits but understanding the real risks involved is crucial, and that’s our value.

Substance Over Size

An asset management firm obviously must have a potential investor’s trust and confidence. At the very least it must possess the proper credentials and adhere to the highest standards of ethics. The Monetary Authority of Singapore requires a Capital Markets Services (CMS) licensee, such as Eu Capital, to meet their assets under management (AUM) criteria. Yet, AUM is not an absolute barometer of skill or competence. Neither are a flashy office space or outsized staff. As good students of the great Warren Buffett, we commit ourselves to the basics. When you buy things that you don’t need, soon you have to sell things you need.

Wise investors are not blinded by superficial gimmicks and headline-grabbing schemes. They are focused on one goal: delivery of superior risk-adjusted returns over the medium to long term. That is why our clients retain us year after year.

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