The Lake Wobegon Portfolio
This morning is a time to take a breather and sit back to contemplate. My indicators aren't giving me any sell signals on any of the stocks I presently own and the market seems to be slightly above it's yesterday lows so I'll wait till noon to see what is in store for us today.
Let's take a minute and try to clarify what we really want out of our portfolios. Lots of people are looking for some magic secret that will propel them into the Forbes 400 list in just a matter of weeks. My inbox is filled with SPAM promising that they offer the only newsletter that can show me the secrets of the universe and can reveal to only me the next great penny stock that will go from 50 cents to 100 dollars in the next year. All I can say is: " A fool and his money are soon parted".
There are no secrets to investing. There are no crystal balls that can tell you what the market will do in the next week, month or even next year. There are only 3 things you need to have a superior portfolio:
1 - Knowledge
2 - Tools
3 - Discipline
Investing is like weight control. We all have the knowledge that you can control your weight by balancing calories ingested and calories consumed. Any imbalance in the equation results in a gain or loss of weight. We all have the tools. Every package of food has the calories per serving clearly disclosed. We all have the ability to increase or decrease calories taken in with portion control and increase or decrease the calories expended by increasing or decreasing our exercises or activities.
So what's the problem? Why are so many of us overweight? The difference is discipline. Evey day you must monitor your calorie and exercise equation or things just get out of hand.
But so many people still look for that magic secret to "the body you've always dreamed of having". Investing is the same way. Everyone is looking for that magic secret that will make them rich without any effort.
What's all this got to do with the Lake Wobegon Portfolio? Plenty. You have knowledge. You have tools - more knowledge and tools are available on the Internet for free than you can ever use, so why is your portfolio performance not above average? Discipline!
If you consistently monitor your portfolio so that every stock you hold is slightly above average then your portfolio performance will be superior. If you consistently let your winners run and sell your losers unemotionally and without regret your portfolio performance will be superior.
The whole is equal to the sum of its parts. If every stock is just slightly above average, your performance will be above average. Sounds too simple?
Use this simple list as your guideline:
- Be conservative -- Don't swing for the fence
- Capital preservation is number one -- Don't take chances
- Don't think you can out guess everyone else
- Don't think you have better tools or secrets everyone else doesn't have
- Apply the knowledge you have
- Consistently use the tools available
- Be more disciplined than anyone else by continually reviewing your holdings and trimming the losses unemotionally.
I'm sorry if I've disappointed you by not unlocking the secrets of the universe but wake up!. The secret is there are no secrets.
As my German professor told me in college: " There are only three ways to learn German. Discipline! Discipline! Discipline!"
So today I still believe that the only three things you need to beat the stock market averages is:
1 - Knowledge
2 - Tools
3 - Discipline
Any single one of these is not enough. You must consistently use all three.
Jim Van Meerten is an investor who writes on investing here and on Barchart Portfolio Blogs. Please leave a comment below or email JimVanMeerten@gmail.com.