Anyone who has been invested in the stock market for any length of time has probably felt the euphoria when stock markets are hitting new highs and the despair felt near market bottoms.
It is at times like these that those emotions lead to a desire to change the portfolio — whether chasing a hot stock or sector or selling your stocks while you wait for things to “calm down.”
We believe one of our most important roles is to remind you of the portfolio that was crafted specifically to meet your goals and well-suited for your needs. That portfolio is the best kind to have. In short, changes in your life should change your portfolio, not what the market is doing at the moment.
Benjamin Graham, known as the “father of value investing” and author of the classic, The Intelligent Investor, once said “the investor’s chief problem — and even his worst enemy — is likely to be himself.”
The drawing at the top of this page perfectly describes the problem of investors underperforming their own investments due to their behavior — which we would argue that their behavior errors are due to the emotional reactions to current market conditions. Dalbar has done this study every year since 1994 and repeatedly shows the average investor is underperforming their own investments — while there are several reasons for this, there is no denying the role of investor behavior.
We often say that, beyond anyone in your family, no one cares more about you achieving your goals than we do. While we care deeply about you, we are not emotionally tied to the portfolio (or more accurately, certain dollar amounts for your portfolio) as you may be. It is that emotional distance that allows us to appropriately advise you when the market is causing you to want to make inappropriate adjustments to the portfolio.
The next principle in our investment management philosophy is proper implementation.