Few among us live blameless lives. We may desire to be good and rational investors, but who here can truly say that he or she is perfect? Who has not succumbed to the temptation to take a shortcut or three in pursuit of higher returns, or an easier life, or because you know – you just know – what’s bound to happen next?
Who has has not coveted his neighbour’s assets?
Ah, yes, brothers and sisters, we are all sinners because we are but flesh and blood.
Each of us is burdened by the hanging weights of our failings. And there is but one way to free ourselves of the guilt of self-sabotage [1].
Confess! Confess! Confess!
Let us form our own investing Truth and Reconciliation Committee. A place where active and passive [2] believers alike can air the dirty laundry buried at the bottom of the closet of our soul.
Never forget we are in good company. The most famed confession in investing is that of Harry Markowitz. The father of Modern Portfolio Theory [3] once admitted he merely split [4] his wealth 50:50 between stocks and bonds rather than computing his own efficient frontier [5] – the latter being Markowitz’s own concept for maximising return and containing risk that led to his Nobel Prize.
Harry bared his soul so we too could free ourselves of the need to pretend we always act like good little rational economists.
So what have you been up to? Are you:
- A vicar who invests in arms companies?
- An active fund manager with a personal portfolio full of trackers [6]?
- A dart-throwing monkey who secretly uses a stock screen?
Or jut another avowed passive investor [7] who loves a bit of market-timing and runs a 10% ‘fun portfolio’ that somehow gets topped up again after every wipe out?
I’ll go first
[8]
I have not read a fund prospectus in years. I used to. But I’m not a lawyer and I found that reading 100-page documents full of Legalese and clauses that amounted to, “The fund manager can do what they damn well please at the end of the day” weren’t conducive to breaking the analysis paralysis that sets in if you try and do everything by the book.
I find that the fund factsheet, sticking to plain and simple funds, and reading around the subject are enough to tell me what I’m getting into.
I don’t have a deep knowledge of some of the indices [9] I invest in. Does my emerging markets tracker include South Korea and Taiwan? I really don’t remember. I took a look when I first invested. It was full of BRICS, Eastern Europe, Asia and a little Middle East. It was by MSCI and later FTSE, it’s a Vanguard fund… I’m in the right ballpark and that will do, okay?
I have an active fund in my portfolio despite my position as a passive investing evangelist. The fund is the Aberforth Small Companies Investment Trust. I wanted to invest in the UK small-value [10] sector. There aren’t any passive investing equivalents. The Investor recommended it to me. It was cheap. I researched it carefully and it seemed solid.
It’s done really well! I’m really SORRY!
What do you want from me? I’m only human! [Breaks down and sobs].
Okay. That feels a lot better, thanks.
Your turn.
The Accumulator