“One of the most important things in life is what you choose to ignore. What you choose to not to give a sh*t about. I think it is one of the most important decisions we make.” – Daniel Pink on The Psychology Podcast
I have written in the past about the importance of having a written investment policy statement. This can be done either by yourself or in consultation with an investment advisor. Maybe the most crucial thing in that document is what you WILL NOT invest in. An investor today has literally thousands of things in which they could invest. The permutations are for all practical purposes infinite.
This allows us to focus on those things on which we have some level of education, experience and competence. This level of comfort will hopefully prevent us from doing something rash at the worst possible time. Carl Richards writes:
Perhaps the only thing that’s worse than not having an investment policy statement is not following the one you do have. The rules set by the statement are very important because they prevent us from making rash, emotional decisions at precisely the time when calm, collected, logical thought is most valuable.
Over the past few weeks I have come across a number of things which could go on a ‘too hard’ list. That is, asset classes or investment strategies that, after further examination, just aren’t worth the effort. This list is by no means comprehensive and will differ from person to person.
- Individual stocks – Nick Maggiulli in this podcast talks about why it is nearly impossible to know if you, or a manager, has any stock picking skill. Another point is that investing in an individual stock is very different than buying an index.
- Emerging market bonds – “This 50-year experiment in expanding capital market access to countries that lack robust domestic institutions has been a failure…” – Jay Newman
- Global bonds – I read this article, but I found no compelling case to invest in global bonds.
- Liquid alts – “Most liquid alternatives funds haven’t been good diversifiers. In many cases, they’ve not only failed to improve the risk-adjusted returns of a diversified portfolio, they’ve made them worse.” – Ben Johnson
- Collectibles – “Collectibles have a fundamental flaw: they don’t generate cashflow. In fact, after maintenance, storage, deterioration, and transaction costs, their cashflow is usually negative.” – Alan Cole
This list is by no means comprehensive, but it very quickly cuts down the investable universe. Your investment policy statement, including your ‘too hard’ pile, doesn’t have to be perfect. Nothing is perfect in investing, or life. However in going about our investment lives we can strive for ‘thoughtful simplicity.’