Hi Guys,
“But a good portfolio can prosper for decades with minimal intervention. A basket of stocks is not a board game with turns and rounds. It's something that should be mostly hands-off. After a proper allocation is set up, one of the biggest strengths of individual investors is what they don't do. They don't trade. They don't fiddle. They don't require daily monitoring.”
This quote is surprising because of its author. It came from The Motley Fool’s cofounder Dave Gardner as reported by the reliable financial writer Morgan Housel.
Housel summarized Gardner’s unexpected conclusion with “But his point is that the game of investing is often won by the investor whose strategy is to "play" as little as possible….”.
Here is the Link to the article:
http://www.fool.com/investing/general/2016/05/13/two-short-stories-to-put-successful-investing-into.aspxI didn’t expect Gardner’s statement; I see him as a stock-picker. This is yet another instance of how hard it is to characterize anyone with a simple summary. We’re complex by any standard.
I practice what Dave Gardner preaches. It has served me well. It’s easy for me since it’s within my emotional and intellectual wheelhouse of action minimization style. That investment philosophy is not suitable for everyone. That’s good since the frequent traders help to keep the markets fluid and nearly efficient.
Best Regards.
Comments
"It’s easy for me since it’s within my emotional and intellectual wheelhouse of action minimization style."-
MJG, That's the name of the game. You've been known to castigate (indirectly of course) those you think are shifting significant invested funds around often. I'd be willing to bet that most of those, including myself, are invested in a core of securities or mutual funds that are within their wheelhouse and that they make very few changes of consequence.
(There are a few here with particular skills and experience who don't fit that mold - but I could count those posters on the fingers of one hand. Kudos to that small group. They possess skills and temperament most of us lack.)
What you do observe from time to time MJG are people playing around the edges, tilting slightly towards a particular undervalued sector, adding a modicum of equity risk after big market sell-offs or reducing their portfolio's risk profile a trifle after achieving outsides gains or for other reasons. I recall that back in January you posted that you had reduced your equity exposure somewhat, citing advancing age as the chief reason. I had a feeling at the time that you had also turned a bit less optimistic regarding equities?
I've shared my approach before and don't wish to regurgitate. But in a nutshell, 80% entails a broadly diversified buy-and-hold strategy. Hell, I don't even rebalance within that area unless a component substantially exceeds/falls below a broad pre-set range. The remaining 20% is also mostly static, split between equities and fixed, but does allow for slight changes in emphasis based largely on perceptions of market valuation (which may be right or wrong) and also allows for the exceedingly rare short-term speculative investment where I might perceive opportunity.
Half-way through retirement I believe that retaining a small capacity to add or subtract market exposure reduces overall risk and better allows me to stay the course for the long run. I genuinely love reading and following the financial markets, so am comfortable with this type of playing around the edges. Others may not be so inclined. All of this is not to say that there aren't irrational posters who appear to buy and sell everything based on emotion, moon cycles or their predictive prowess. But they're rare here and deserve no attention.
Regards
Thanks for your reply.
It appears that you, like me, "practice what Dave Gardner preaches". I hope it has served you as well as it served me.
My posting was not meant as a comment on any MFOer's investing strategy; to each his own poison. I typically make no comments on any specific individual's choices. I submitted the article mostly because of who was making the announcement. I never suspected that a Motley Fool cofounder would advocate such a strategy.
Best Wishes.
I meant to "second" your affirmation of some of the content in The Motley Fool. They do put up some good stuff. And the remark is spot-on as I think we agree. My answer was getting quite long (you can relate to that) and so I ended up leaving it out.
Forgive me. But I did take the liberty of linking your remark concerning minimization style (great term) to the broader context of discussions here at MFO. A bit unfair of me I suppose. In particular, I recalled your response to Ol' Skeeter's "What are you Buying, Selling or Pondering" thread two weeks ago (May 3).
"Hi Guys,
Nothing! ... I am not buying, not selling, and doing almost zero pondering. I leave the deep pondering for the heavy weight investors who think they can forecast market direction. That's a Loser game since nobody persistently succeeds at it. ....."
Perhaps I'm just being thin-skinned, but I felt at the time that you were subty casting ridicule at those who had made or were considering making allocation changes. Good-natured of course! But ridicule just the same.
Sir ... do tell me I was wrong in that assumption.
Regards
Thank you again for this exchange opportunity. Yes,like a few others on MFO, I have a strong tendency towards prolixity. I am guilty of that communication sin. Sorry about that.
But I am not guilty of ridiculing anyone's investment decisions or asset allocations. I have made more than enough errors and misjudgments managing my own portfolio. I respect the right of everyone to assemble their own set of victories and defeats.
Change happens to folks at different times for an endless array of real and sometimes emotional reasons. All that is goodness since it makes for a vibrant marketplace. The marketplace marches to its own quixotic drummer.
I am no market guru and don't even make market recommendations to my kids.
Best Wishes.
I meant to incorporate the following reference into my earlier submittal and failed to do so. Here it is now:
http://www.advisorperspectives.com/commentaries/rbernstein_081314.php?channel=Smart Beta
Chart 1 in the Bernstein reference is especially illuminating. It compares the 20 year average annual returns from numerous asset classes against those achieved by individual investors.
That comparison is devastating for the private investor. Simply put, as a cohort, we stink to high Heaven. That’s an analytic conclusion. From the article: “The average investor even underperformed cash (listed here as 3-month t-bills)!”
Wow!! Our ineptness is legendary. I do suspect that MFOers do a little better than the average individual investor. That mythical private investor must be horrible in his trade timing decisions.
Sorry for my omission.
Best Wishes.
I'm not surprised at the underperformance of individual investors. Higher fees alone account for some of that.
Not aware of just who Bernstein considers the average investor. Many individuals have small stakes in 401Ks through work or open IRAs on their own with good intentions. Unfortunately, many raid these periodically to cover emergency expenses (for example: by taking out loans from their plan). Others simply don't have time or inclination to monitor their investments, stay informed, or make intelligent decisions.
If "average investor" were dollar-weighted I think the results would be somewhat better. In other words, those with more skin in the game are likely to pay better attention and do better. Of course, few can beat the indexes over time. The indexes don't have operating expenses, brokerage fees, tax considerations to account for, or advisory fees. They're just that - indexes.
Before I leave off, MFO is not comprised of average investors. The fact that folks come here tells us they do have an interest in monitoring their investments and becoming better informed. It's a pretty select group to begin with.
Regards
PS: Richard Bernstein appeared infrequently on Rukeyser's original Wall Street Week. He tended to be a bit too conservative for my liking in those days. I never viewed him as the sharpest knife in the significant lineup Rukeyser unsheathed weekly back than. But he was by all accounts a competent member of the investment community.