What is happening in the Middle East is a stark reminder that nothing in the world, even what is assumed to be the safest in the world, should get your significant portfolio allocation.
UAE has been a high conviction bet for a lot of smart, affluent people, and for me. I still believe that it will rise again and be a great beneficiary of the changing world order. Despite this, I will not risk putting all my money in a single region.
My investment thesis is simple. The world is changing on the back of dedollarization and AI-led disruption. The change is not favourable for the existing regime. The superpowers of the world want to maintain the status quo of world order and would do whatever it takes to keep their grip on power. However, the change is inevitable as a law of nature. Change is not easy, and fear of losing/maintaing power makes people do unimaginable damage.
It is extremely difficult to evaluate and assess the timeline and magnitude of this change. Therefore, it’s impossible to identify winners and losers when things settle again, and a new world order is established.
In this backdrop, I have been strongly urging everyone not to concentrate their wealth in one asset class and one region. The times we are in require diversification of investments across asset classes (Equity, Debt, Gold, Real Estate, commodities), and across geographies (India, US, China, UAE, emerging markets, etc.)
The key points of consideration, however, are:
1. Invest in assets that offer some margin of safety, which means they shouldn’t be extremely pricey compared to their intrinsic value. This will ensure lower downside risks.
2. The asset allocation needs to be dynamic and not static. It means that the exposure to a certain asset class or region should not be static at all times, but should change depending on the valuations and future prospects. Therefore needs active review, monitoring, and rebalancing.
3. The investments should be mostly liquid to have the option to move investments easily across asset classes/regions.
At the current juncture, the investment objective should be to survive (with moderate return expectations) and not to aim for very high returns with the downside of significant and unbearable losses. Because one cannot be certain of anything in this uncertain world.
