Investment Attributes: Humility
There are certain attributes that a person can develop to help them in any activity. To use a sports analogy there are certain muscles or body systems that are key for certain sports. You don't need endurance for weightlifting and you don't need incredible power for long distance running.
Humility is the toughest attribute to cultivate, as soon as you think you have it, that is when you lost it. From an investment perspective, the market is going to do what it is going to do and we have no control over it. We sometimes think we are smarter than the market, maybe you think I believe I am smarter than the market because I am trying to beat it. Not so. The market is very very smart. In fact it is the cumulative knowledge of everyone who trades in it - and that is a lot of people.
I don't think I am smarter than the market. What I do is look to the market for the signals it gives and listen. This is uncommon and therefore gives me uncommon returns. I am beating other investors by being a better listener, not the market. A good investor has to learn and remember that the market is smarter than any of us.
I believe that the ultimate test of humility in investing is the ability to sell ones losers. We all have them, we never talk about them and we try to hold on until they have a little bit of a gain so we don't have to admit we lost. The more humble we are, the quicker we realize our mistakes and move on.
When was the last time you realized your investment thesis was wrong and sold out before the loss got too big? Don't beat yourself up, most professional money managers struggle with this one too.
If you don't keep yourself in check the market will humble you, and that is a costly way to keep your humility up. This month is probably humbling a lot of investors...
So what are the skills or attributes needed to be a good investor? I will list a number of them and will try to talk about one each month going forward.
In my opinion the following attributes are key to becoming a successful investor.
Curiosity, Patience, Humility, Conviction, and Discipline
Humility:
Humility is the toughest attribute to cultivate, as soon as you think you have it, that is when you lost it. From an investment perspective, the market is going to do what it is going to do and we have no control over it. We sometimes think we are smarter than the market, maybe you think I believe I am smarter than the market because I am trying to beat it. Not so. The market is very very smart. In fact it is the cumulative knowledge of everyone who trades in it - and that is a lot of people.
I don't think I am smarter than the market. What I do is look to the market for the signals it gives and listen. This is uncommon and therefore gives me uncommon returns. I am beating other investors by being a better listener, not the market. A good investor has to learn and remember that the market is smarter than any of us.
I believe that the ultimate test of humility in investing is the ability to sell ones losers. We all have them, we never talk about them and we try to hold on until they have a little bit of a gain so we don't have to admit we lost. The more humble we are, the quicker we realize our mistakes and move on.
When was the last time you realized your investment thesis was wrong and sold out before the loss got too big? Don't beat yourself up, most professional money managers struggle with this one too.
If you don't keep yourself in check the market will humble you, and that is a costly way to keep your humility up. This month is probably humbling a lot of investors...
PORTFOLIO UPDATE (as of 8/15/2019):
Current Performance:
The ETF's and other funds that make up the portfolio's MTD Returns:
Portfolio Description:
The first is a "buy and hold" strategy that does not ever change. I call this the Equal portfolio because it is made up of four equal parts allocated to different asset classes. It is 1/4 in large cap equity (Ticker VONE), 1/4 in small cap equity (Ticker VTWO), 1/4 in investment grade debt (Ticker AGG), and 1/4 in high yield debt (Ticker JNK). The allocations never change. The only thing needed is to rebalance every so often as performance differences will cause the weights to shift.
The second portfolio is a "tactical" portfolio. It is tactical because it adjusts the weights to the four asset classes above based on market conditions. I call this the TA portfolio. It can go 100% into any one asset class or be a mixture of them. 1/12th of this portfolio can change each month as I make a monthly call on what i expect will do best over the next year based on current market conditions. Historically I have picked the best asset class about 50% of the time, the second best about 25% of the time, the third best 18% of the time and the worst 7% of the time.
The third portfolio is also a "tactical" portfolio. I call it the Enhanced portfolio because I follow the same allocation as the TA portfolio but I pick other vehicles that I expect to offer a better return than the four ETF's used in the Equal portfolio. This allows for active management and broader exposure to asset classes such as International Equities, Emerging Markets, and Commodities among others.
Current Allocations:
Current Performance:
The ETF's and other funds that make up the portfolio's MTD Returns:
| Ticker | 8/15/19 |
| VONE | -5.9% |
| VTWO | -5.4% |
| JNK | -1.3% |
| AGG | 2.0% |
| IEMG | -6.6% |
| DVY | 0.8% |
| GOVT | 3.0% |
Portfolio Description:
The first is a "buy and hold" strategy that does not ever change. I call this the Equal portfolio because it is made up of four equal parts allocated to different asset classes. It is 1/4 in large cap equity (Ticker VONE), 1/4 in small cap equity (Ticker VTWO), 1/4 in investment grade debt (Ticker AGG), and 1/4 in high yield debt (Ticker JNK). The allocations never change. The only thing needed is to rebalance every so often as performance differences will cause the weights to shift.
The second portfolio is a "tactical" portfolio. It is tactical because it adjusts the weights to the four asset classes above based on market conditions. I call this the TA portfolio. It can go 100% into any one asset class or be a mixture of them. 1/12th of this portfolio can change each month as I make a monthly call on what i expect will do best over the next year based on current market conditions. Historically I have picked the best asset class about 50% of the time, the second best about 25% of the time, the third best 18% of the time and the worst 7% of the time.
The third portfolio is also a "tactical" portfolio. I call it the Enhanced portfolio because I follow the same allocation as the TA portfolio but I pick other vehicles that I expect to offer a better return than the four ETF's used in the Equal portfolio. This allows for active management and broader exposure to asset classes such as International Equities, Emerging Markets, and Commodities among others.
Current Allocations:
DISCLAIMER:
Past performance is not a guarantee of future performance. This strategy is presented for informational purposes only and is not a solicitation to buy or sell any securities. The writer of this blog owns many (long positions only), if not all, of the securities discussed in this blog. October is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May , March, June, December, August and February. ~ Mark Twain
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