“Knowing yourself is the beginning of all wisdom.” ― Aristotle
This week is Blogger Wisdom week on Abnormal Returns. As we have done in previous years we asked an esteemed group of independent finance bloggers a series of (hopefully) provocative questions. Yesterday we asked our panel what one piece of advice they would impart to all investors. Answers are not edited and the author’s name, blog name and Twitter handles follow. We hope you enjoy these posts as much as we do putting them together.
Question: What’s the one thing investors should do to simplify their lives? (Answers in no particular order.)
Stick everything in a Vanguard target retirement fund and be done with it. Our financial lives would be less entertaining, but probably more lucrative.
Jeff Carter, Points and Figures, @pointsnfigures:
Turn off lots of sources of info. Find information sources that are not sensational and designed to get you to click. There is enough emotion investing because you are putting capital at risk. Take a step back, and don’t react compulsively. It’s exactly the opposite of what I learned trading on the floor. The other thing is that truly great trades are totally counter intuitive and away from the herd or smart money.
Switch to daily or weekly charts and delete real-time data.
Don’t play someone else’s game. Comparisons to others are understandable but unproductive. If you’re an individual investor, worry about your financial needs, not some irrelevant benchmark or the fad (or fear) of the day. If you’re an investment professional, quit copying everyone else and create a clearly differentiated approach to investing and your business.
Tobias Carlisle, The Acquirer’s Multiple, @greenbackd, co-author of Concentrated Investing: Strategies of the World’s Greatest Concentrated Investors:
Find a low-cost, sensibly constructed value portfolio and dollar cost average into it.
I am a huge fan of Dashlane software. It has really simplified my username and password management…which gets very cumbersome these days.
[Membership] An annual membership helps support Abnormal Returns and gives you access to exclusive e-mails and perks.
Delete entirely, or at the very least turn off notifications from, all finance and investment apps on your phone. Most daily news events in financial markets will have zero impact on your long-term financial well-being. This constant inundation of irrelevant information is almost guaranteed to give investors a bias towards action, to the detriment of their own success.
Focus less on maximizing return and more on the specific goals you are trying to achieve. The future is largely random and unpredictable. No matter how you build your portfolio, hindsight will show it to be the objectively sub-optimal decision if your goal is only to maximize returns.
If we focus instead of why we are investing (e.g. for a child’s education, a down payment on a house, or retirement spending), we can better design portfolios around increasing the confidence of achieving those specific goals and minimizing our regret.
Save more, take moderate risks, and lower your expectations for the future. Remember what Jesus said, “Take heed and beware of covetousness, for one’s life does not consist in the abundance of the things he possesses.” [Luke 12:15b, NKJV] Don’t focus on what you can get out of life, but how you can serve God, and do good things for others. You will be happier, for this life and the next.
Consider how much time and energy you wish to spend on investing and the pursuit of superior returns. If the answer is “not much”, construct a more passive approach with low cost ETFs. You can gain exposure to the market’s leading indices or a basket of leading stocks in each industry group, without having to select individual stocks. If you are an active investor or a trader, then you have your work cut out for you. Much more time and effort will be devoted to scanning and analyzing individual stocks and managing your positions.
Cut out all unnecessary information. This includes time spent consuming “news”, financial television, analysts’ forecasts, and the volumes of info and opinions flooding you on social media. More “info” and polarizing opinions = more noise and more anxiety. So choose who you follow and what you read very carefully. Focus your time and attention on the best educational info you can find. If it’s not helping you grow as a trader or as an investor, get rid of it.
Figure out how to spend less time managing your money – automate, outsource, simplify, reduce the number of decisions you’re forced to make and don’t pay so much attention as to the daily happenings in the markets. The longer I’ve been involved in the markets the less I pay attention to the day-to-day movements and it’s been a huge help to both my stress level and ability to think clearly about what really matters.
[E-mail] Subscribe to our daily e-mail newsletter to stay up-to-date with all of our posts.
Robin Powell, The Evidence-Based Investor, @robinjpowell:
Stop kidding yourself that you can beat the market over the course of of your investing lifetime — or that it’s worth the expense, time and stress involved in trying to. Diversify, capture market returns at very low cost and just rebalance every year.
One of my most popular articles this year explains the importance of simplification through the context of Colonel Blotto, which is a classic zero-sum game in which one player’s gain is another one’s loss. There are lots of suggestions in the article, but the easiest is to hire a financial advisor that acts as fiduciary at all times and emphasizes financial planning over investing. A good financial advisor makes life simpler, improves financial outcomes, and gives you more time to spend doing things that are more important in life.
Turn off the television (and read more).
More books, fewer articles.
Without a web browser open or their cell phone nearby, decide what kind of investor they are going to be. Trendfollower, quantitative value basket buyer, deep value stock picker, microcap investor, indexer, factor allocator, S&P 500 only, it hardly matters. First decide. Then quit reading everything in sight, quit trying to confirm your priors, quit arguing on Twitter about who is right. Go and focus on executing the decision that you have made to the best of your ability.
Make as much of your investing as possible automatic. Just as your 401(k) contributions come directly out of your paycheck, you can make your contributions to IRAs, HSAs brokerage accounts or anything else automatic by setting your account to pull the funds out of your bank account every month. It makes saving a lot less complicated.
Stop searching for alpha.
Wesley R. Gray, Ph.D., Alpha Architect, @alphaarchitect, co-author of Quantitative Momentum: A Practitioner’s Guide to Building a Momentum-Based Stock Selection System:
Buy Vanguard funds.
Brett Steenbarger, TraderFeed, @steenbab, author of Trading Psychology 2.0: From Best Practices to Best Processes:
Prioritize. Identify what you want to accomplish in the coming year, two years, three years–in your personal, professional, and investment lives–and eliminate activities that will not contribute to those goals in some fashion. Identify each day what you need to do to make the day one that is enjoyable, gratifying, energizing, and affirming. Exercise the functions that make you better; hard, consistent work on a small number of concrete goals will serve you better than lofty, abstract intentions.
Look at their account balances less often.
Invest in a few great money managers and/or trading services.
Save more (a lot more, and thus spend less).
Michael Martin, MartinKronicle, The Michael Martin Show, @martinkronicle:
Investors should write a diary of their daily tasks for 2 weeks and then study / remove what does not add up to their success. Take back your time, cancel unnecessary subscriptions, and focus on the 2-3 things that you do well. Honor your protective stops religiously.
1) Give careful thought to your personal situation – goals, assets, and income potential.
2) Think carefully about risk. This does not mean a questionnaire. It means getting yourself in the actual moment of losses and imagining your reaction.
3) Develop a plan that is geared to your specific needs. If you can implement and stick to it yourself, fine. If not, get some help.
4) Review the plan once a year or if there are major life changes.
5) Do not spend time checking your portfolio on a short-term basis. It is meaningless, and will just tempt you to make a mistake.
Remember your time horizon and why you’re investing and never lose sight of that priority. In the last 25 years, the S&P 500 is up 488% (per Google Finance). Someone who was 40 in 1992 might have had a little bit accumulated for their retirement and so has had the opportunity for plenty of growth, all the more so if they continued to put more into their accounts. Obviously the last 25 years includes two instances where the market cut in half but the now 65 year old who kept their head in the face of crises has benefited from huge gains.
Someone who is 40 years old today will like have to deal with a crisis or two over the next 25 years and while returns may not be as great as the previous 25 years, avoiding panic and maintaining a proper asset allocation will give the best chance for getting the most out of the next 25 years.
Thanks to everyone for their time and effort. Stay tuned for my answers to the week’s questions.