My Singular Investing Principle in 2017
Yes, I know 2016 “was like the worst year ever.”
People have been calling 2016 “the year of the unexpected” (though I’m not confident that this was the only year everyone’s crystal ball didn’t quite work). Economically, politically, and socially we have seen a lot of big events come our way over those 366 days, each with its own degree of “that’s not likely”. While reflecting on the year has its advantages, I’m a firm believer in burning your diary and focusing on what’s ahead.
My plan for 2017? Expect the unexpected.
“That’s easy to say”, is probably what you’re thinking–which is completely correct–so how about we think of it a different way, but first, let’s go back to one of the big events of the year: Brexit.
On June 23rd, while the United Kingdom voted to leave the European Union, I was interning with a financial advisor on the West Coast. After following the political tug-of-war for many weeks, and being glued to a screen for nearly every minute of voting, I was expecting the world to collapse after the final vote came out. The British Pound plummeted overnight and speculation about the UK’s regulatory future whirled around endlessly. Coming into work the next day, I expected to see this:
But there was nothing. The phones weren’t ringing off the hook. People weren’t running in, afraid that they had already lost all of their money. It was quiet…too quiet. So naturally, I had to stir the pot. I asked, “why isn’t anyone calling, concerned about their money after Brexit? No one expected this to happen.”. “It’s simple” he said. “We plan for these things; we plan for the unexpected”.
By planning for the unexpected, hundreds of portfolios weren’t overweight in one asset, one sector, or one company. They were properly allocated over a suitable variety to offset surprises. Sure, everyone in the lot didn’t make a killing by betting against the pound, but they also didn’t have to sell the family farm to cover their losses. So that brings me back to my earlier note:
My (revised) plan for 2017?
Expect Plan for the unexpected.
How is that different? Simple; you don’t need a crystal ball, or to be more bold than an action movie star, you just need to make carefully calculated decisions while building (and maintaining) your portfolio. By focusing on a few core ideas, your portfolio can stay on track while the world is turning upside-down.
1. Don’t bet the farm
Oh, you need to pay your rent next week, but that biopharma company you really like is up for FDA approval? Probably not a great idea (take it from yours truly). Like I talked about in my first article, investing is like gambling with odds you can manipulate. Unfortunately, even when you think that you have accounted for all of the possible risks, there are many unexpected events that only invest what you are willing to lose; even the safest of investments have rough patches.
2. “The only thing we have to fear, is fear itself.”-Franklin D. Roosevelt
In short: take a chill pill. While you may think that you should sell the stock that is in free-fall to “cut your losses,” it may be the worst move to make. The human mind looks to find the quickest way out of these bouts of anxiety, which is why your hand reaches for the sell button when things go badly, but unless you have a plan, don’t let instant gratification lead to a boatload of regret.
3. Asset Allocation.
But what is it? Asset allocation is the amount of one’s portfolio that is invested in the major asset types (fixed income, equities, cash, derivatives, etc.). Though some say it is a “technique”, most financial advisors would agree that it is the most important investment decision for one’s portfolio. Like most everything else, the proper asset allocation is different for everyone (a conversation in “suitability” as it is called, can be saved for another day), but focusing on it first and foremost is a must for all. The big takeaway from asset allocation is that where you put your money is much more important than picking individual stocks.
So, as we start a new year, we hope for the immortality of celebrities, referendums on Mariah Carey’s performance, and to not completely screw up in the market (please please please). Here’s to 2017!