Unlock the Editor’s Digest for free

Akin to selling all of my equity funds in October, the plan was to achieve a sense of closure after an emotional year of downs and ups. Readers may remember that my father carked it — as we say in Australia — at the end of January. He always told me I had to scatter his ashes at sea.

A mile off our beach house north of Sydney to be precise, where a large rock called The Bull rises from the water. It was grandpa’s favourite fishing spot and four decades ago my dad rode out on a surf ski to throw Jack to the waves.

Therefore I grew up knowing that eventually I too would do the same. A fortnight ago, the day had come. But he bloody hated fishing, said my mum and sister. Why not just dump him in the surf at Soldiers? He loved that beach.

I should have listened to them instead of obeying the dead. A solemn dawn paddle this was not. It was pure comedy in fact. Trying to hold a heavy plastic container between my knees as six foot swells hit from multiple directions made me capsize regularly.

Each time I was knocked off I had to dive after dad as the wind blew away the board. The only way I could remain upright was to ride with my legs dangling over the sides — not an efficient way to glide through the water. And while my shark app told me the recently tagged Great White (#2377) wasn’t nearby, what about his mates?

Was that one? No, it was a dolphin. And another! I burst into tears. With dad and grandpa accompanying me I finally made it and under a heaving sea the ashes formed a long cloud that took more than 10 minutes to disappear from view.

It made no sense to move to 100 per cent cash before my trip home over Christmas. And yes, it went against everything I’ve written previously. But far offshore I wanted only to think about dad. Nor while on holiday with friends and family did I care to follow the markets.

But now I’m back and this portfolio isn’t going to invest itself. This is the fundamental problem with self-managed pensions — as my father understood well. But having someone else do it wouldn’t leave me much to write about each week.

So let’s go. How to match last year’s 24 per cent return this year? You might think it’s easier to start with cash — a blank page. But, in theory, your starting point should make no difference to the correct investment strategy.

In practice, however, thinking anew each day is hard. Everyone is biased towards their current portfolios or favoured asset classes. Add in capital gains taxes and transaction fees and who wouldn’t rather justify their current holdings than trade?

First, though, in the spirit of transparency, was my ditching of stocks three months ago the right call from a returns perspective? For almost four weeks afterwards I felt pretty smug about it as equity markets spasmed. But they have rallied since.

Enough so that my portfolio would now be worth £647,000 rather than the £638,500 you can see in the table below. Or put another way, it would have grown 2 per cent if I’d done nothing rather than the 0.8 per cent I earned in cash.

Not much difference in the scheme of things. But equivalent to a couple more trips Down Under (not that I can withdraw money from my pension for another five years). Let’s not gloss over it, though. It was wrong to sell my funds.

The main opportunity cost was the FTSE 100. It’s up 4 per cent since I sold my ETF at what seemed a great exit price. Thankfully, for me at least, the Japan and Asian large-cap funds are only 1.4 per cent higher.

What is more, my cash outperformed the S&P 500 in sterling terms over the period. Indeed, doing nothing in pounds was preferable to the returns of many assets priced in dollars. Overall, then, the damage was negligible.

Does that mean I should just buy everything back? I still prefer those stock markets to most others. But emerging markets have also been catching my eye in recent months, as I wrote in early November. Latin America also these days.

The problem — as I’ve also banged on about — is these are relative calls. The flaw in my logic for previously not owning US equities due to insane valuations is that when the AI bubble pops it’ll take down everything with it, no matter how “cheap” in comparison.

Hence, a better buying opportunity should come along. When will that happen, though? The mood in markets upon my return to the northern hemisphere is still resolutely bullish, despite the weather, Venezuela and, in England, the Ashes.

This bubble is coated in graphene it seems, one of the strongest and stretchiest materials ever invented by man. But nothing is impenetrable and to my mind the arguments supporting tech stocks are also one atom thick.

Don’t miss out and prepare for the worst? It’s an impossible circle to square with a conventional portfolio. Sure, I could invest half in shares and keep the rest in cash or bonds — I’m confident the latter would rise in a meltdown despite indebted governments the world over. But my losses would still be substantial.  

Options are the only way to go, as per the two columns I wrote last year. Get most of the upside while protecting the downside for a small cost. This will involve a new level of complexity and administration, however. Am I ready for this?

Are you? 

The author is a former portfolio manager. Email: stuart.kirk@ft.com