Sunday, January 21, 2007

The value of doing nothing ...

Left: Superior investor Rip Van Winkle.

According to a recent news item by investment newsletter tracker Mark Hulbert, results from tracking both investment newsletter writers, professional mutual fund managers and even individual investors, results attained by measuring the performance of "last year's portfolio" is better, on average, than the results of the current portfolio.

In the newsletter example given, "yesterdays" portfolio beat the current one by, on average, 80 basis points. This is outperformance - measured against one's own investing skills - which is not to be sneered at.

As Hulbert put it, the logical conclusion to arrive at in portfolio changes then becomes ...
... what these results do suggest is that we should place a large burden of proof on making a change in our portfolios. Unless the arguments in favor of such a change are particularly compelling, we probably should simply do nothing.

Doing nothing, however, is harder work than most investors want to subject themselves to.



JW

The Confused Capitalist

2 comments:

Robert Freedland said...

Jay,

As you probably know, I am a big believe in automatic adjustments to portfolios. That is, I trust decisions to the stock price movement rather than thinking about it. It is the act of thinking, and believing that one can make a decision better than the market that fouls us up.

My approach is to create a bias in my portfolio for stocks that are doing well. Very simply, I sell my poorly performing stocks quickly and completely, and my gaining stocks slowly and partially. It is this bias that continuously concentrates my holdings in the better performing stocks.

If you are other readers are interested, they can visit my blog, Stock Picks Bob's Advice where I discuss stocks that I believe are good investments and also track and report on my own Trading Account.

Keep up the good work here!

Bob

Jay Walker said...

Hi Bob,

Thanks for dropping by. As you might know, I appreciate the insight you offer on stocks you analyze, which is why I have a link to your blog under the "Insight I Like" title on the right hand side of my page.

I recommend that readers interested in specific stock picks head over to Bob's site.

Keep up the good work!

JW