As already noted, my investment portfolio came about more as a process of happening rather than as a result of explicit planning. Still, there are several considerations that are guiding the balance of my portfolio:
Diversify the risk and avoid cluster risk. An entrepreneur clusters his or her risk in order to build a business and to rapidly increase his or her wealth. As an investor do not allocate everything to a few risky projects or one asset class. We divided the assets in the beginning in two broad classes; “Generation Money” and “Active (Risky) Investments. This was a smart move since the financial crash happened less than one year after the sale of my shipping company so we are one of the few that have a significant value increase in that time period.
Keep track of the free cash flow! This can be done through a computer-based system or through a spreadsheet which both aggregates all your assets, and tracks the cash needs as well as cash-flow generated from each investment in the portfolio. This also allows us to consider some key characteristics of the portfolio, to be discussed in the bullet points below.
Keep enough free cash in the bank to be able to participate in exceptional opportunities that might arise. Perhaps equally important it is important not to have to sell certain assets at non-optimal times, simply to generate cash for short-term needs. A solid cash and liquidity buffer is an important element of my portfolio.
There is currency risk associated with all large portfolios, whether you like it or not. In my case this would primarily involve NOK, SFr, € and USD, but to a lesser extent Yen and £. The aggregation of your assets, via a spreadsheet or software system as described under paragraph 2, allows us to assess the overall currency exposure balance, and to increase or decrease exposure to particular currencies. The mix of currencies are reviewed with a leading currency expert every quarter.
Geographic exposure. This is in my case primarily driven by where we might have unique expertise. So, Norway and Switzerland are weighted heavily. Real estate is also carried out in the US and in Bulgaria, and shipping is globally exposed. As of today there is little direct exposure to Asia, nor to Africa nor South America (only indirectly via stock listed companies, with global reach and operations). Remember, however, that a homeland bias can be a major source of cluster risk, which should be avoided.
Time horizon regarding investments. Some investments are typically shorter term (such as stocks, currencies), some might be seen as medium term (such as most ventures and private equity) and some as long term (such as real estate, shipping and education).
Pragmatism and flexibility. As Darwin has said, success doesn´t come to the strongest nor the most intelligent, but to the species most able to adapt to changing circumstances. When an investment isn´t working out, whether it be a single stock or a venture, don´t continue to throw good money after bad. Cut your losses, and move on to more promising opportunities. Oppositely, however, humans have a tendency to sell good stocks too early. Let your profits run, and enjoy the ride. If you wish to trade liquid assets, one approach can be to trade with half the position and let the other half be a core, strategic holding (which you allow to fluctuate up and down on a long term upward trend).
Assess and monitor risks and opportunities continuously. Changing circumstances lead to changing portfolios. An ideal portfolio yesterday, can be a sub-optimal or even disastrous portfolio today. Complacency is your enemy. Continuously thinking through and rethinking future scenarios will give you an upper hand as an investor, improving both short term and long term performance.
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