A question that I am often asked is what a portfolio one should make for their children or their grandchildren. Most people measure the profitability of their investments in rather short terms – from six months to a couple of years, at the most – but there are people who consider much longer terms , usually to dedicate that investment to their offspring.
There are also investors who like to have two portfolios: one tactical, aimed at the short and medium term, and another with a much more strategic vision. The latter, which remains stable over time, is what is technically known as a “buy and hold” portfolio.
There is nothing wrong with having two portfolios with different investment horizons. What should not be done is to manage the strategic portfolio as if it were tactical or vice versa.
So, to definitively answer the question of what a stable portfolio with a very long-term vision – more than 15 years – would look like at Nextep, we have decided to issue an analysis note – what the most modern now call a “paper” – so that this issue is definitely settled among our clients.
The first thing that arises – and impresses – when designing this strategic portfolio is how important it is to identify the great technological or economic revolutions. In fact, it is the most important thing.
For example, in the 1970s a way was found to exponentially increase the storage capacity of microchips. It happened in Silicon Valley, where, in addition, geniuses like Steve Jobs or Bill Gates began to work. Then the Internet was invented and other geniuses arrived, such as Page and Brin (co-founders of Google) or Mark Zuckerberg ( Facebook ). The investor who realized what was cooking 20 years ago has earned 625% more by investing in the NASDAQ than by investing in the IBEX, an index totally unrelated to the digital revolution.
But beware, the transforming forces do not have to come solely from technology . They can come from the industry in any of its forms. In the future it could be the aerospace or environmental industry, for example. Even so, and given that we are in a society that is characterized by its worship of technology – just as others gave more importance to war or religion – when designing a strategic portfolio it is mandatory to also look towards technology. For example, towards subsectors such as artificial intelligence, Blockchain technology or quantum computing.
In our “paper” we also look at assets that do not have a great future “per se”, but which, due to various circumstances, can currently be extremely expensive or terribly cheap. The extremes also interest us in a strategic vision.
The most obvious case is the hypervaluation of bonds , especially those of Western countries, the result of years of manipulation by central banks. They have probably had no choice but to do so, but their massive purchases have pushed interest rates to 1,500-year lows and consequently prices to unprecedented highs. And it is not a joke. This is certified by several studies that analyze the cost of money since the Roman Empire. And the good thing is that betting against an asset that we consider overvalued is today as easy as buying a fund that invests in the Eurostoxx 50.
As for the instrument chosen, we have not had the slightest doubt: ETFs. New businesses, especially in incipient sectors, usually do not have a significant presence in traditional investment funds. But they can be found in third-generation mutual funds (ETFs). And on top of that, we will save a fortune in commissions, since ETFs are on average 80% cheaper than traditional investment funds. In addition, as the idea is to buy and hold, the tax advantage of traditional funds disappears, since we are not going to move the portfolio until we finally sell to give the money to children or grandchildren.
Of course, direct investment in securities is also worth it. The example I have given above on the NASDAQ pales in comparison to whoever directly spotted Jobs, Gates, Page, Brin or Zuckerberg. The problem is that this is a bit more difficult. Geniuses take time to be known / appreciated. And they suffer potholes, as happened to Jobs. In our opinion it is better to start with ideas and trends and then focus the shot by adding proper names.