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Individual investors and fund managers have the duty and responsibility to plan and design their stock portfolio for all kinds of eventuality.
They have to keep a close eye on recent events and make their value judgment on whether an event would have a substantial effect on their portfolio returns and, if so, whether they need to make the necessary adjustments.
They read about the economic slowdown in China and Japan, the upcoming US Fed meeting, the imminent US fiscal cliff, etc., and they wonder to themselves: “should I go with Happy Meal No. 1 or No. 2?” It is for this reason that the editor of this column requested this writer “to write about portfolio rebalancing, after the spate of economic data and earnings reports.”
But what’s even more daunting is that investors now must scrutinize not only the most probable events but - in the wake of the US subprime mortgage crisis and the Eurozone meltdown - they must also be on the lookout for any possible sightings of a Black Swan event.
As popularized by by Nassim Nicholas Taleb in his 2004 book “Fooled By Randomness,” a Black Swan event is an event that has a very low probability of happening (say, one chance in a thousand years) but has a large impact when it does occur. The US subprime crisis is considered to be a Black Swan event.
Personally, this writer feels that the Philippines growth story has already run its course, especially since—if one were to look behind the curtains—the bulk of the growth story is being fuelled by the government’s deficit spending. This is like putting the domestic economy on steroids. Once the fiscal stimulus dissipates, the economy would return to its long-term growth trend, which is around 5-5.5 percent.
The same goes for corporate earnings, which is partly driven by a low-base effect as well as one-off extraordinary items. There is no point to rebalance one’s equities portfolio to the recent economic figures and corporate earnings reports.
So, it would appear that most stock portfolios have been primed for this year’s growth and most eventualities, except for one thing. No investor and fund manager has made the necessary provisions for a zombie attack or, blackest of Black Swan events: a zombie apocalypse.
That may sound like a frivolous contingency to most readers. It does not sound so trivial when it becomes known that the US’ Homeland Security Department last week warned American citizens to prepare for a zombie apocalypse, to get ready for the living dead, by stocking up on food, batteries and water, and keeping a spare change of clothes and medication on hand.
This is the truth. The information campaign even has a tagline: “If you're ready for a zombie apocalypse, then you're ready for any emergency.”
The same tagline could apply to anyone’s stock portfolio. Face it and answer the question in all honesty: “Is your stock portfolio ready for the zombie apocalypse?” In all likelihood, the answer would be in the negative. Fret not. This is when stock portfolios are re-balanced for the untimely return of the dead.
The first stop for zombie-proofing one’s stock portfolio is to run to the corner video store and acquire a copy of “Dawn of the Dead,” the 1978 horror film written and directed by George A. Romero. Named one of “The Best 1000 Movies Ever Made,” a list published by The New York Times, most people would see the film as great entertainment and nothing more. The portfolio strategist must see it as a training video on how to combat the nefarious forces of evil zombies.
“Dawn of the Dead” provides the definitive go-to bible on all things zombies, which are undead creatures that are mindless, reanimated corpses with a hunger for human flesh, and particularly for human brains. They are plodders, just like the local equities market, not the fast-moving creatures depicted by a number of heretical movies and books.
As first lesson from the “Dawn of the Dead,” the story tells of four people who try to escape “a pandemic of unknown origin [that] has caused the reanimation of the dead, who prey on human flesh” by barricading themselves inside a suburban shopping mall, after dispensing of all the non-paying zombies vagrants inside the mall.
That’s the very first lesson: buy a mall operator. The safest haven would be a mall, which handles all the goods and services that one would require in case of an apocalyptic event.
It should thus come as no surprise that among the best performing stocks this year are Ayala Land, up 51 percent; Robinsons Land, up 66 percent; and SM Prime, up 34 percent. Ayala Corp., which owns ALI, is also up 35 percent, and DMCI Holdings, a builder of malls, is ahead 37 percent.
Power utilities, banks and telecommunications companies do not appear to be good holdings to have in a zombie apocalypse, according to the table. This is only logical since all power services would be down when all their operators turn into ambulatory undead people.
Money and ATMs would likewise become useless in an apocalyptic scenario. And who would one want to talk to, or text, when all that everyone else can do is grunt and moan? Real estate companies that rely purely on condo sales would similarly be hopeless in this end-of-days scenario.
What about beer and liquor makers? One would think they would be valuable in a zombie-dominated world, if only to deaden the pain of walking around mindlessly while hunting for human brains.
The main lesson to be learned here is that if you have positioned your stock portfolio for the land of the undead, then you would surely be able to handle anything that the living can dish out.
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