I just read another piece by Ray Dalio on world power and new orders.

That made me realized things about my investment strategy and also reflect on this month’s heavy underperformance.

The biggest drawdown during the month was HK$-1.2M, and it’s sitting around -800k at of writing on June 19th.

I outlined the numbers in another post so I will continue to update there, but I want to organize my thoughts in this post.

The most frustrating part

So it’s one thing to watch the portfolio drop, that’s volatility.

But it’s another thing to watch it drop WHILE the market is soaring.

Here are the past 3-month performance as of today:

• Gold -13%
• BTC -12%
• MAGS -6%
• GRNY +12%
• SPY +13% (0 holding)
• QQQM +23% (0 holding)
• 8058 -18%
• 7011 -20%
• 8001 -10%
• N225 +32%

It’s almost crazy how “opposite” the market is going vs. my portfolio.

gold and BTC needless to say – both down significantly in recent months.

but even the stocks that I picked, both US and JP stocks – those are down as well including the Mag7, the shosha companies, and MHI.

Meanwhile the QQQ and N225 is having the biggest jump in their histories.

(Good thing at least I have some GRNY and it’s my biggest holding, which has some upside despite losing vastly to QQQ)

So it’s super painful to watch, and hard to deal with that “frustrating” feeling in the past weeks and few months.

The cause

Alright so the biggest narrative and macroeconomic event has been – the Iran war.

And that led to higher oil prices, which trickled down to CPI, and the market is pricing in a steep “higher-for-longer”.

Previously it was thought that this year there would be maybe 2 rate cuts. Now zero cuts are priced in, and even 1-2 hikes are on the table.

If there was 1 biggest enemy to my portfolio, that would be higher rates.

Not higher inflation though, higher rates – and higher “real rates”.

Which is where the market is pricing in – job market is strong, inflation is sticky, so the Fed would raise rates even further higher than inflation to curb it.

In any case, I don’t know if that’s actually “correct”, but the market is the market, and that’s what it is pricing in now.

However, a special tailwind is forming specifically just under a handful of AI stocks – namely semiconductors and chips related names.

And that’s driven by recent earning seasons and seeing the companies profitability skyrocketing.

Which is why those small number of companies can defy gravity and actually shoot up in this liquidity drain period.

So much so that it can still create the illusion of a thriving stock market making record highs.

The “new world order”

After reading Dalio’s piece though, I have some new (or renewed) insights about the recent drawdown.

The fact is, the Iran war is exposing US inability to fight a long war, and that’s beneficial to China’s ambitions.

Which means China has even more cards and become a much more “balanced power” compared to the US.

The post mentioned that as China solidify its power while the US continues to struggle, it would become more obvious that the US wouldn’t want to stick their nose into a war between China and Taiwan.

And China also knows this so they will try to use the “art of war” and coerce a non-war unification.

In which case, personally, I actually think it is quite a decent outcome for everyone.

Even without war though, the coercing part and transition would be painful.

And after such unification if it indeed happens – the world would become even more polarized.

Implication on my portfolio and strategy

And this “more fractured” world is exactly what I have positioned my portfolio to be mainly about:

• less dependence on USD and US assets. weakening of fiats like USD and JPY
• possibly weak stock market due to less trade and more geopolitical risks (ie. taiwan chip blockade)
• geopolitical risks becomes tailwind for non-sovereign assets – Gold and BTC
• tailwind for commodities and energy – JP shosha, NLR (nuclear + uranium)
• tailwind for defense names – SHLD, MHI

Ironically, the Iran war triggered the higher-for-longer narrative which is a headwind for everything mentioned above.

But the long-term thesis is in tact – or rather even more solid than previously.

So the resolve for me is that, I need to see this reality and keep my focus on the longer term investment horizon.

If the thesis indeed plays out – more fractured world regardless of taiwan unification or not – gold will definitely be on a decade-long supercycle. USD devaluation will certain continue. BTC thesis should play out as adoption grows and people realized its a great asset in this new world. Also part of the stock portfolio will benefit.

I would expect easily a 15% annual growth on the assets, which translates to 25%+ annual growth with margins. Over a 10 year horizon, that would be around 10x growth in the portfolio, or roughly HK$50M in net worth.

Let’s see if that plays out and I will revisit this post in 2036 maybe to see where I am.

Of course meanwhile making sure that my margins are safe and I don’t get liquidated at the lowest prices which will vastly decrease my returns – which is the focus of the other post I made.