I always listen to what I can leave out.
A lot of art, a lot of life, is made better by subtraction. The sparing use of musical notes or brush strokes or words in a sentence lends greater emphasis to those that remain. The space between the notes is like a showcase, almost a stage of its own.
A garden will have better results with fifteen carrots in a square foot than it will with fifty. Fifty looks more impressive when they first sprout, but they quickly crowd each other out. The patient use of space pays off when it counts.
Most people will get faster results by lifting weights two or three days per week instead of every day. It’s not the lifting of weights that makes you stronger – it’s recovering from lifting weights that makes you stronger. Without space to rest and repair, the workouts will weaken you over time.
In the course of managing an investment portfolio, it is easy to fall into the trap of wanting to always make things happen. Chase from one market to another. From one strategy to another. To keep adding new screens, more complex rules and metrics. These efforts seldom yield good results. The more effective course for most would be to do the opposite. Subtract.
Subtract Bad Habits
Many workable investment plans have been sabotaged by destructive traits. It doesn’t have to be one massively bad problem, just a continuous drip of poor impulse control or flickering amounts of “cheating” on the rules can be just as bad. In poker, these are called “leaks,” which is an apt description.
We do things like sell our winners too early, because it looks like the gain is getting away. We hold on to losers for too long, because we see some news that sounds favorable. We concentrate too much in a single position because it’s the only thing that’s working well right now. We don’t act when the rule says to buy because it doesn’t feel right. The list is endless.
Enforcing self-discipline may be the most difficult part of investing. It’s relatively easy to formulate a plan that addresses when to buy, when to sell, limits on position sizes, asset allocation, etc. It’s surprisingly difficult to allow a plan to work without the interference of our own natural impulses and bad habits.
Subtract Unnecessary Fees
When confronted with a choice between two, essentially identical, things, the lower cost option is the easy and correct choice. The only caveat here is that things that appear identical can sometimes have important differences. For example, two ETFs that represent the same market sector may have wildly different dividend yields or risk profiles.
Subtract Distractions and Bad Influences
Have you ever read a news article on a subject you are very familiar with and wondered how the reporter got everything so wrong? The same thing happens every day in the financial news. It’s very easy to find yourself swayed by things heard on the news or from friends or coworkers. So often, the news isn’t even true. Or it might be true, but unimportant. Or it might be true and important, but overshadowed by some other even more important news that you don’t know about yet.
We are especially vulnerable to being swayed by news we hope to be true. We tend to give a lot of credence to news we like and are dismissive of news that is counter to our beliefs. This gives us some cover, a way to rationalize bad behavior like bending investment rules. Fortunately, this is easily fixed. Stop reading market news. Stop watching CNBC. Just stop.
Unless your investment plan depends on specific news events to trigger decisions, and hopefully it doesn’t, there is nothing to be gained by watching. In fact, it’s worse than that. If watching market news and listening to stock market celebrities causes you to second guess your plan or occasionally bend the rules, it’s not just a waste of time – it’s costing you money.
Sometimes the simplest things can make an enormous difference.
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