The Energy Strategist

The Portfolio remains in positive territory since 15 February 2006. Although last year’s brutal selloff caused some damage, 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 timeframe.

The Portfolio rallied impressively into the end of 2008 and has held its own in 2009, too.

The Silk Portfolio is long-only and doesn’t hold any cash. I imposed this restriction in order to fairly compare performance against benchmarks because all major market indexes are long-only. This performance doesn’t include Permanent Hedges returns.

Sentiment drives markets in the short term and has been the main factor for the past six months. The fact that the Silk Portfolio is focused on developing markets underscores its outperformance.

Looking at the long-term performance, since Silk’s inception 15 February 2006 through the end of the first quarter 2009, the Portfolio is up 3.8 percent.

Our benchmark--the MSCI World Index, which includes gross dividends--is down 32.2 percent. The S&P 500 is down 32.5 percent, including dividends, during the same timeframe.

Source: Bloomberg, Silk Road Investor

How Silk Works

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.