The Energy Strategist

Although quarterly results aren't my primary concern, the end of the period offers an opportunity to assess performance since the Silk Road Investor's inception.

The Portfolio has remained in positive territory since February 15, 2006. Last year's brutal selloff inflicted some damage, but the Portfolio has performed markedly better than the Morgan Stanley Capital International All-Country World Index (MSCI World Index) and the S&P 500 over the same period.

The Portfolio has also turned in a respectable performance in 2009, comfortably outperforming its benchmarks.

The Silk Portfolio is long-only and doesn't hold any cash, restrictions that provide a clearer gauge of overall performance relative to its benchmark indexes--the major indexes are all long only. Please note that these performance figures do not include returns generated by recommendations in our Permanent Hedge category.

Since its inception, the Portfolio is up 61.5 through the end of the third quarter of 2009. Over the same period, the MSCI World Index is down 1.6 percent and the S&P 500 is down 11 percent. All returns include dividends.

Source: Bloomberg, Silk Road Investor

I’d like to offer an explanation of the way I view the investment process.

The first step when you become a Silk reader--with its emphasis on global markets, emerging markets in particular--is to understand the argument that Asia will be a very important economic region in coming years. The next step is to contemplate that evolution and then act in a long-term fashion. Many investors have tried the “smart” way of trading Asian markets or have searched for the latest “hot” story to make a quick profit. These people ignore the big picture, and their profits are relatively small.

Long-term readers know that I haven’t positioned the Silk Portfolio in that manner and that I didn’t work like that when I was responsible for stock selection and sector allocation for another financial advisory. In other words, generating long-term, positive returns while avoiding short-term downside is the theory upon which I'm constructing the Silk Portfolio.

And I make every effort to alert investors when I see moves to the upside or the downside or any other special situations.

The approach here is top-down. I first identify long-term investment themes (or, as my colleagues and I call them, global secular trends). Because of the long-term approach, the Portfolio must be able to endure short-term volatility as long as we continue to be on the correct side of the global secular trend. To achieve this, the Portfolio is being constructed to offer a diversified set of holdings, while I also offer hedging ideas for more-complete advice.

A characteristic common to the Portfolio companies is suitability for the new realities of a changing world. They'll benefit the most from the changes taking place in the global economy.

No one knows how long it will take for the global economy to navigate the secular trend identified here. This is the reason investors need to remain focused and have a portfolio that can last and perform well on a tactical basis. After all, the way to stay in the game isn't by losing all the money, and tactical mistakes can cause that. This is the main reason I won't put convictions above analysis and will avoid suggesting only one type of attitude or trade, especially short-only strategies.

It's important that you look at the Silk Portfolio as a whole and not as an assortment of stock tips. Although few people will buy the Portfolio in its entirety, you, at the very least, need to buy Silk investment theme in order to diversify. Buying only banks or tech companies because you like the stories may offer a reward, but such an approach won't provide the lasting benefits of the overall Portfolio.

Keep in mind that Silk comes to you twice a month--complemented on a weekly basis by Emerging Markets Speculator--and always offers current advice. Adding and subtracting stocks from the Portfolio can be done more easily this way. There's always another week, and neither readers nor the editor need to rush. Patience has always been a good thing to have when investing.