Posts filed under “Rules”
Its the start of the new year, and most of you have been thinking about some grandiose plan for self-improvement. Quit smoking, lose weight, clean out the basement, exercise, spend more time with family and friends, floss.
May I suggest taking control of your portfolio as a worthwhile goal this year?
I have been thinking about this for awhile now. Last year (heh), I read a quote I really liked from Tadas Viskanta of Abnormal Returns. He was discussing the disadvantages of complexity when creating an investment plan:
“A simple, albeit less than optimal, investment strategy that is easily followed trumps one that will abandoned at the first sign of under-performance.”
I am always mindful that brilliant, complex strategies more often than not fail. Why? A simple inability of the Humans running them to stay with them whenever there are rising fear levels (typically manifested as higher volatility and occasional drawdowns).
Let me state this more simply: Any strategy that fails to recognize the psychological foibles and quirks of its users has a much higher probability of failure than one that anticipates and adjusts for that psychology.
Toward that end, as you make your financial plans for the new year, I would suggest that you keep in mind these simple ideas for your portfolio:
BR’s Guide to Simple Investing
1. Use ETFs to get equity exposure more often than picking individual stocks.
2. Valuation when making purchases matters more than anything else I can think of to your long term investing success.
3. Low Cost passive investing, dollar cost averaging into 5 broad indices (Big cap, tech, emerging markets, fixed income, etc.) is ideal for do it yourself investors.
4. Rebalance across various asset classes regularly. Do so at least annually, preferably quarterly. (Online tools for doing this should drive your broker selection).
5. Keep your Costs and Expenses low. This may be the only free lunch in all of investing.
6. Reduce your Turnover level; keep it low (this helps with #5, plus most of these)
7. Avoid the Noise: Reduce your consumption of useless chatter, be it in print or on TV. Classic investing books are vastly superior to ephemeral market gossip.
8. Review your portfolio regularly. Check your allocations monthly. To see how your holdings are doing, use weekly, not daily charts.
9. Venture Capital and Private Equity ain’t easy — if you lack the skills, capital and risk tolerance, avoid them.
9B. Most IPOS are a sucker game.
10. Avoid new financial products at all costs.
I am curious as to your comments or thoughts on this. If there is interest, I may expand it into a full column.
These were my rules I pulled together for the Washington Post: 1. Cut your losers short, and let your winners run. 2. Avoid predictions and forecasts 3. Understand crowd behavior. 4. Think like a contrarian (but don’t always act like a contrarian). 5. Asset allocation is crucial. 6. Decide if you are an active or…Read More
Brett Arend recently informed us of the passing of Dan Bunting, a man who “successfully managed money on behalf of private individuals and institutions for nearly 40 years.” Over the years, Bunting had developed a series of rules that governed his investing strategies. Here is the short version of Bunting’s Laws: 1. Sell stocks of…Read More
I love this comment from Dynamic Hedges: “In cable news, debate means two opposing ideologues get equal time to spout bullshit. In trading, opposing views means someone is actually going to be right and someone is actually going to be wrong. Seek out debate and use it to clarify or disprove your thesis. Find people…Read More
Lessons from the 2012 election Barry Ritholtz WASHINGTON POST November 10 2012 Wisdom can be found in many places. Whenever I encounter some momentous event with winners and losers, I try to discern broader lessons to apply elsewhere. The 2012 presidential election was no different, with lessons that can be applied to investing…Read More
> On Wednesday, I jotted down a few takeaways from the election that were applicable to investors and people running businesses. Really, it was for any one with an interest in learning from the misstep of others. I liked the idea so much I decided to expand it for my Sunday Washington Post Business Section…Read More
I am always on the look out for lessons that I can apply to investing and business. This post-election morning is not any different. Let’s take a look at some of the more interesting aspects of the election season, and try to discern what lessons there are, for investors and others to learn: 1. Process…Read More
Economists have been stumped by the past dozen years.
The Dotcom collapse was an early warning that economists, as a class, were not clued in. Sure a handful recognized that there were budding problems — think Bob Shiller — but he was notable as an exception.
Then we had the entire debacles of 2000s – derivative implosion, housing collapse, credit crisis, market crash — and we found that the vast majority of economists are academic theorists who were completely blindsided by events in the real world. And those were the good ones, as opposed to the biased hacks whose goals have nothing to do with discerning objective reality.
We need to admit that Economists, as a profession, are stumbling around in the dark.
To quote Edward Hadas, “Policymakers and pundits still make confident pronouncements, but the conclusions are radically different. The expert disagreements give away the truth: ignorance reigns.”
Hadas identifies six questions which professionals should stop pretending they can answer:
1) What creates retail inflation?
2) How do financial asset prices affect the real economy?
3) Do big fiscal deficits damage the economy?
4) What does quantitative easing actually do?
5) How much leverage is too much?
6) How to deleverage without damaging the economy?
If economists cannot explain the basic workings of the economy, perhaps we should be relying on them much less for policy advice . . .
Admit economic ignorance
By Edward Hadas
Reuters, October 31, 2012
Yet another rule to add to our ongoing collection. This one comes from Economist David Rosenberg, formerly Merrill Lynch’s chief dismal scientist, now at Gluskin Sheff: 1. In order for an economic forecast to be relevant, it must be combined with a market call. 2. Never be a slave to the date – they are…Read More
Another set of instructive rules for investors, this one from Morgan Housel: 1. Nine out of 10 people in finance don’t have your best interest at heart. 2. Don’t try to predict the future. 3. Saving can be more important than investing. 4. Tune out the majority of news. 5. Emotional intelligence is more important…Read More