Friends,
In 1981, the government in Munich, Germany, conducted an experiment: equipping a portion of the city's taxis with a new technology -- an anti-lock brake system (ABS). For three years, it monitored how the use of such brakes affected road safety.
The results were unambiguous -- and shocking: they made everything worse!
As the LA Times summarized years later:
"Not only did drivers of ABS-equipped vehicles have slightly more accidents, on average, they also... create[d] more traffic conflicts. In other words, the wonder brakes did nothing for road safety, but rather had the opposite effect: They encouraged drivers to speed up and be more reckless.
The takeaway was counter-intuitive: When we feel safe, we behave more dangerously; when we feel cautious, we behave in a safer manner.
It'd be wise to apply this wisdom to our portfolios.
While we are individual stock pickers, we have long espoused that there's nothing wrong with being an index investor who "sets-it-and-forgets-it." The implication being that this is the safest and surest way to wealth.
But that doesn't mean you can get careless.
An example: if payments for college are less than three years away, that money shouldn't be in the market. Just because you mimic the S&P 500 doesn't mean the balance can't drop 57% over the course of a few years (ahem, Great Financial Crisis).
Conversely, a super-concentrated portfolio might seem super-risky. But if said investor keeps an eagle eye on everything happening at those companies, it can work out in their favor.
It's not so much about one approach being better than the other. The approach needs to match the investor's temperament. And to do thatβabove all elseβyou need to be honest with yourself about who you are.
That's great advice for investing...and pretty much everything else in life,
Wishing you investing success,
|
|
Brian Feroldi, Brian Stoffel, & Brian Withers
Long Term Mindset
|
P.S. We just launched a brand new store! Check it out here. Just don't buy anything yet...we're having a 'Black Friday' sale next week.
β