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Playing a different game

Baruch, an pseudonymous fund manager, writing at Ultimi Barbarorum, had a great post up this weekend talking the need for investors to take control of their portfolios.  Josh Brown at The Reformed Broker framed it as the return of the old fashioned, Peter Lynch-style retail investor.  Both note that the dominant theme at the moment for individual investors is to avoid stock picking and focus on broad portfolio themes.

The recent rally in the stock market is likely to gin up more interest in the stock market.  Baruch’s hope is that investors do it in a sustainable fashion. The entire post is worth a read but here are a few highlights:

  1. There is no constituency on Wall Street that benefits from individuals taking control of their portfolios;
  2. Individual investors do have some important advantages, i.e. time frame, over institutional investors;
  3. Investors can set aside a part of their portfolio to experiment with a handful of individual stocks;
  4. Buy unloved stocks like those with ‘K’s’ in their name.

OK that last one is a bit tongue-in-cheek, but you get the point.  Above all the most important theme to emerge from this post is the need for individual investors, not matter their approach, is to take responsibility for their own investment decisions.  Baruch writes:

Above all, the key to success in investing is about taking responsibility for your investments. If things go wrong with your stock, it is not Bernanke’s fault. It is not your broker’s fault. It is not the fault of the guy who gave you the idea on his blog, or as part of his trading system, or the supposedly smart hedge fund manager who you read about who had it in his portfolio. It is yours. You did it. When you internalise this great truth, you will set yourself free.

There are as many ways to structure a portfolio as there are investors.  However successful investors of all stripes each develop their own unique approach to the markets and as Baruch writes they absolutely own their decision making process.

Last year we speculated that all of the focus on big, macro themes created opportunities in individual stocks for investors, retail and institutional, who have a longer term time horizon.  From our post on the forthcoming golden age in stock picking:

In short, you can’t beat the computers at their own game.  Instead you need to play an entirely different game.  One that puts a longer-term focus on individual companies and their underlying values.  Otherwise the volatility inherent in this kind of market will eventually wear you down or wipe you out.

That is not to say any of this easy.  Investing is hard.  Baruch notes that investors need to both do the work required AND take responsibility for their investment decisions.  If you can’t do that, what’s the alternative?

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