You Are Lying To Yourself

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We all do it. Consciously or not, we all lie to ourselves and it costs us money.

“The majority of your beliefs, particularly in business, are driven by what you want to be true.”    -Tom Asacker, author of The Business of Belief

We form beliefs about things based on experiences and perceptions that are often just fragments of reality. An initial impression or a bit of passed down wisdom that we’ve heard from a young age can have an enormous and long-lasting effect on our expectation of how things are supposed to work. This leads us to mainly see only what we already believe and discount things that challenge those beliefs. It’s called confirmation bias and it’s probably costing you money right now.

For example, let’s say you’re Continue reading

Investing Clues From Portland Food Carts

investing clues from portland food cartsWhen I last worked in downtown Portland, twenty-some years ago, this was where I parked. Back then it was just a parking lot. Look at it now – the entire front row is occupied by food carts. It looks like a shanty town, but smells better. Driving by here a few weeks ago led me to think about the investing lessons that can be found in the incredible success of the restaurant business. Continue reading

Defense Wins Championships

Public domain image courtesy of John Van Winkle via Wikimedia Commons

Public domain image courtesy of John Van Winkle via Wikimedia Commons

Investors often take the words “defensive” or “conservative” as code for “being willing to accept small returns.” The truth is, playing defense can be the easiest way to boost your returns.

Most investors focus on offense. Finding the next Tesla or Google. Trying to figure out which sector will benefit most from next week’s GDP numbers. Who’s going to beat estimates and by how much, etc.

The problem with focusing solely on offense is that it’s almost impossible to possess an advantage. You use the same information to try to find the same opportunities as everyone else. For example, Continue reading

Q&A: Are Stop Loss Orders Really Necessary?

So I understand that stop loss is used to protect gains/limit loss. But is it really necessary like during a time of crisis? Example: I buy a share of company A for $100 and put a stop loss at $90. Stock closes at $101. Something occurs in premarket, and stock goes down to $80. How has that protected me when it sells at the market open when everyone else is frantically selling?

In the example you’ve outlined, it hasn’t protected you, at least not in the manner you were hoping for. I am an enthusiastic proponent of setting pre-defined protective exits, but will be the first to tell you that they are not perfect.

Investing is a process of making decisions in an environment of uncertainty. Everything we do is a tradeoff. For example, a stop loss order on an ETF of technology stocks will be more reliable than a stop loss order placed on a single technology stock. Which is more important to you – Continue reading

Q&A: How much cash should you keep in your portfolio?

How much % cash (dry powder) do you leave in your portfolio? As a general rule, one should always save some dry powder for good buying opportunities. How much reserve do you usually keep in your portfolio?

I think there are two reasons to hold cash in an investment account:

1. To fund regular monthly/quarterly withdrawals (source of income).
2. If the alternative to cash is a bad bet.

For this discussion, let’s just focus on the second reason. I disagree with the idea that you should always save some dry powder. When good opportunities present themselves, there is no reason to pass them up in favor of some vaguely defined better opportunity that might come along someday.

It’s important to acknowledge that the best opportunities are almost never obvious in advance. If you lay in wait for an ideal circumstance where everything feels just perfect, you will be waiting for a very long time. Fortunately, we don’t have to find perfect investments – we just have to find investments that are superior to cash.

For example, let’s say that my asset allocation plan dedicates up to 20% of my portfolio to Continue reading