At Eu Capital, some of our clients entrust us with over 90% of their investible net worth, relying on us to generate passive income while covering their living expenses and housing costs. To date, we have consistently delivered annual compounded returns that exceed inflation, thereby improving their standard of living.
In the realm of wealth management, novice advisors often advocate for excessive diversification, spreading investments across numerous asset classes. For instance, portfolios may include 5% in Chinese equities, 10% in high-yield bonds, and investors 15% in currency derivatives. In extreme cases, portfolios can be fragmented into 20-30 asset classes with thousands of holdings. Unfortunately, this approach frequently results in mediocre annual compounded returns. Clients and advisors often struggle to accurately assess portfolio performance due to illiquid assets and unreliable market valuations. Additionally, occasional boasts of exceptional trades usually represent less than 0.5% of the portfolio. Moreover, focusing on short-term sector performance fails to consider long-term drawdowns. Ultimately, many diversified portfolios underperform against inflation.
As Warren Buffet wisely said, “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
Financial analysis is a highly specialised professional skill that requires years, if not decades, of dedicated learning and hands-on experience to master. Effectively navigating the complexities of financial markets is no small feat. It demands a deep understanding of economic principles, market trends, and the intricate interplay of various financial instruments. This expertise cannot be acquired overnight; it is built through rigorous study, continuous learning, and practical experience.
While obtaining a PhD in finance can provide a solid theoretical foundation, it does not guarantee success as an investor. Success in financial markets hinges on the ability to apply theoretical knowledge to real-world scenarios, conduct thorough research, and perform in-depth analysis. It also requires a keen intuition developed over years of observing market behaviour and learning from both successes and failures.
Unfortunately, the profession of wealth management is often tainted by the presence of fraudsters and scammers who prey on unsuspecting investors. These individuals use deceptive practices to mislead, promising high returns with little to no risk. As a result, they undermine the trust and integrity of the financial industry.
Additionally, there are misguided financial advisors who may lack the necessary expertise or operate under conflicts of interest. Some advisors are compensated in ways that do not align with their client’s best interests, leading them to make recommendations that benefit themselves rather than their clients. Even well-intentioned but inexperienced advisors can fall short, as they may not possess the deep understanding and practical experience required to make sound investment decisions.
This highlights the importance of choosing skilled professionals who are knowledgeable, have a proven track record of success, and operate with the utmost integrity. At Eu Capital, we are committed to providing our clients with the highest level of expertise and ethical standards, ensuring that their investments are managed with care and precision.
We also believe that concentrated investments can be effective if managed with expertise and prudence. As the saying goes, it is okay to put all your eggs in one basket as long as you ensure the quality and stability of that basket and avoid taking it on a rollercoaster ride.
Once again, quoting our esteemed Warren Buffet, “You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
