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