Intentional Evolution for Investors


“Everything should be made as simple as possible, but no simpler.”

                -Albert Einstein

 We are midway through the first quarter of the year and in the thick of some real turmoil thanks to second and third order effects of falling oil prices and Greek elections. Just kidding! It only seems that way if you listen to commentators on CNBC or read the news. The real truth is, the current investment environment is a tale of simplicity.

As an investor, my two main priorities are to, 1) participate in growing markets and, 2) avoid disaster. If we can do that reliably we’re in pretty good shape. Simple, right?

The first task in this pursuit is identifying growing markets. To that end, there are a couple of monster trends that have been in place for a long time that simplify this job. Continue reading →

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 →

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 →

Q&A: What would you consider a good investment outcome?

At what percentage would you consider the investment a successful one and begin to look for an exit point? I am aware this hinges on a lot of variables but let’s just make an approximation.

When making an investment, I am looking for one of four possible outcomes:

• A small loss
• A small gain
• A medium gain
• A large gain

A successful outcome would be one of these results. To understand why these can all be considered successful, let’s turn your question around – what is a bad investment outcome? Continue reading →