PORTFOLIO UPDATE: THE 3 LEAKS OF THE SUBLIMINALLY BLIND
During the trading day today, I tweeted the following:
Back to the default stance of 75% invested with 25% in cash. This is a default allocation, so to speak, for my strategy. I'm comfortable with it, actually. It helps with cushioning volatility in what is otherwise a volatile sector: small/micro-cap companies.
It is interesting that in bull markets the aura of prosperity seems to blind the lessons of time. I can promise you that a vast majority of those who are making money in this environment will not be able to maintain that success over the next 2, 3, 5 or 8 years. It is the nature of the beast. The markets cannot cater to a majority of participants making money most of the time.
For that reason, an investor must be conscious of the leaks that cause those around them to bleed equity at a much faster rate than they can create it.
The leaks that plague investors across all categories are too many to mention. I will make note of three that immediately come to mind:
1. Love: Investors love to fall in love with shit. I don't mean shit in terms of investments that seem wonderful but turn out to have putrid underpinnings. I mean shit in the blanket sense of the word. It is as if investors view the market as an extension of their lives instead of an arena where capital is constantly shifting. The markets are not the place to make up for your mommy, girlfriend or mistress issues by becoming starry eyed in the face of abuse. The only thing you should fall in love with as an investor is your equity curve. The moment it starts suffering, you had better make that relationship right.
2. Confidence: We are all terrible at investing. To date, those of us who are positive on the year are simply lucky. You are a footstep away from disaster. Enter the markets each and every day with these thoughts and I promise you that prosperity will follow. Confidence in your ability to profit consistently leads to a slippery slope of mistakes that will not be corrected because your confidence doesn't allow for adjustments to take place.
I'm not saying that investors should be a shivering, scared, pale bunch that jumps at every shadow that shows up in the marketplace. I'm just saying that questioning yourself often can make the difference between remaining in the game long-term or just being a flash in the pan. The delicate balance between questioning and being an overly-emotional debutante can only with time...lots of it.
3. Activity: Having the need to act in the markets is no different than a trucker from Tennessee not being able to walk through a casino without putting a quarter in the slot machine. The feelings come from the same place. You are in the arena and you want action. An abundance of activity in an account doesn't work out for most, if anybody. You are simply lining yourself up for a greater volume of decisions that have the propensity to go wrong more often than they are right.
Bull markets bring about the need to be active. I feel it myself when I have looked at the quote for TSLA or even FB, recently. To want a piece of that action is human. To act on that wanting is amateur. Stick to what you know. Don't chase the hotness or it will be chasing you out of the game before you know it.
I make a few trades per month. Simple portfolio adjustments, as I have done recently. The light volume of my trading is likely on the opposite end of most who are in the markets today. I look at it as a decision game. If I can narrow down the amount of decisions I make per year to high-confidence, well thought out scenarios, then I have no choice but to come out ahead over the long-term.
If, however, I begin throwing in less than high-confidence decisions, along with scenarios that have grey areas of risk/reward then my overall average suffers. With that comes a whole series of events that compromise the overall efficiency of my gains. Not a path I want to tread down, by any stretch.
That's all for me tonight. Adios.
