We often have prospective clients ask us to take a look at the securities they are currently holding. Before we can do our analysis we generally ask the question,” Do you know what you own and why you own it?” This is important because more often than not, their stock portfolios were a complete grab bag. Often, they couldn’t remember what the company did or where they heard about it or why they bought it. And rarely did they have a sell discipline. This is important as it pertains to your investment strategy. It can be comforting to know why you own a given investment during times of high market volatility because you will be more likely to hold onto an asset through a turbulent time in the markets. You understand what role that asset plays in your planning and investment strategy.
Every serious stock investor should have, at a minimum, two fundamental things:
Otherwise, you’re just flying by the seat of your pants. And that rarely delivers salutary results. This generally means not only popping the hood of your portfolio but popping the hood of your own brain to understand the cognitive and behavior bias that produce adverse behavior responses. It is no surprise to Lionshare that the 2017 Nobel Prize in Economics was awarded to University of Chicago’s Richard H. Thaler, one of the founders of behavioral economics and finance, for shedding light on how human weaknesses such as a lack of rationality and self-control can ultimately affect markets.
Every asset on your balance sheet can be assessed quantitatively but it should also have a qualitative ranking. It’s important to be able to discern what assets are valuable and add meaning to your life and what is junk and needs to be re-allocated to assets that contribute to your long-term financial goals. Likewise, having reasonably sized positions in assets that are speculative, unpredictable, and/or non-essential to your long-term game plan should also be considered. We help clients make decisions with private equity, venture capital, real estate, and other non-traditional investments.