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Above the Noise

Issue: # 3

May 2011 

Greetings!

 

Welcome to the Crestline Capital, LLC newsletter, "Above the Noise". We share simple insights and information about decision-making and investing.
  
A Ticket with Fewer Punches 

Everyone wants a more secure retirement. What is a way to improve the odds of having that retirement? One of the ways is to avoid self-destructive investment behavior. You can do that by limiting the number of decisions you make. Warren Buffett advises decision-makers to think of  having a card with only twenty punches in a lifetime and every financial decision uses one punch. If you are limited to twenty decisions you will focus more. Each decision will be important and carefully considered. You will dabble less and avoid lower probability outcomes.You might miss some big gains, but you will also likely avoid disaster which is the most important thing. Let the upside take care of itself. You want to limit the downside. It makes perfect sense but it is hard for most people to do on consistently. Most investment advice does not follow this philosophy either because the incentives are aligned to promote activity.  

 

Portfolios tend to accumulate positions.  These positions seemed to be a good idea when they were purchased. I often see ten to twenty positions or more in an account.It is a difficult way for the account owner's wealth to grow. These positions are often the result of chasing performance or a good story. They typically are products or funds that carry higher expense ratios. It is emotionally difficult to sell and because that means you are admitting it was not that good of an idea. If people concentrated instead on the bigger decisions and avoided the stories, they would do better. Keep fewer positions and make them more sensible.

 

My advice is to concentrate on the here and now rather than trying to predict things and chase performance. It is more sensible in the long-run to be prepared. Do not waste time or money on things that are guesses. Investing always involves risk  and the future is always uncertain. You will need to make some assumptions. Make them conservative by always building in a cushion to be wrong. Part of risk lies in the price you pay  so when greed has driven up  prices, take some risk off the table. Lastly stay away from what you don't understand. Keep it simple. If you follow this prescription and you limit your meaningful decisions to what is sensible, you will have a simpler, sound portfolio and a ticket to a better investing experience.

 

   

      

 Click here for a short video from Dimensional Fund Advisors regarding Investor Biases 

Crestline Capital, LLC is an independent investment advisory firm located near Portland, Oregon..

 

Sincerely,

 


Mike Moore
Crestline Capital, LLC

Can You Make Money  Predicting the Economy?

 

Consider the following:

 

Dow Jones Indus. Avg

 

12/31/64     874.12

12/31/81     875.00

12/31/98    9181.43        

 

Gain in U.S. GNP

 

1964-1981   373%

1981-1998   177%

 

 

The Dow Jones Industrial Averages made  virtually no gain in price  in the 17 years ending in 1981 despite the U.S. economy growing almost 400% during those years. The following 17 years the economy grew at half the prior rate but the stock averages gained over 900 %!

 

Charlie Munger, Warren Buffett's partner, points out : "we have hardly made a dime in our lives making macro economic predictions... we're demonstrated incompetents at predicting macro economic changes and making money out of such predictions."

 

It is really hard to make money by trying to read the economic tea leaves.  While it might be interesting to think about, it is not an investment panacea.    


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This newsletter is for  informational purposes only. It does not constitute a complete description of our investment services or performance. This is in no way a solicitation or offer to sell securities or investment advisory services. Information is obtained from sources we believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. There are no warranties, expressed or implied, as to accuracy, completeness or results obtained from any information reported herein. or from any linked websites.