Do not put cash into equities that you will need within 3 years.

As I wrote before when I launched this website on the 11^th February, capital allocation is critical to managing risk. Putting more money than you are comfortable with, in the stock market is a recipe for disaster.

Never putting money in which I will need to draw on within three years, is a discipline that I have always maintained, including in 2008/9, which allowed my portfolio to recover.

It does not matter if your cash in the bank is earning near zero interest. It gives you financial independence and allows your stock portfolio time to recover from “black swan events”.

It is not acceptable for fund managers to come up with the excuse that this was an unprecedented event and therefore your portfolio has a permanent decline which can not be recovered from as money was borrowed and hence selling required or they bought stocks exposed to a single industry but which had overleveraged balance sheets.

Not only is poor capital structure a recipe for financial disaster for personal wealth but also for companies so if you own companies with poor balance sheets who underwent a cheap debt binge over the past few years, you will run a real risk of these companies not recovering; particularly those related to the energy, transportation and hospitality industries.

Do not catch a falling knife – if companies have economic power and can manage their balance sheets such as Shell and BP, they are likely to survive and over time, likely to recover but those in the heavily indebted shale industry are likely to wipe out their shareholders and require restructuring; similarly companies with high fixed costs who are dependent on volumes and have no extra cash cushion because of their poor balance sheets.

It is akin to a personal household if one suddenly has an illness or is out of work and can not pay their medical bills or housing and other debts because their ability to fund their lifestyle was proven to be unrealistic.

The stocks that I will be adding to, if price earnings multiples come down to the level that would be worth deploying the remainder of my long term cash over the next several months, are Microsoft, Apple, Adobe, Alibaba, Mastercard, Visa, Google, Trade Desk, Hong Kong stock exchange (HKEX) and Hong Kong’s Link Reit.

16th March 2020