One of the most valuable investing precepts is “Know what you own.” For most people, this means doing basic, fundamental research on one’s holdings. For some, it means reaching for a cold Bud and thinking, “That’s my fifth one today. Maybe I should buy Anheuser-Busch InBev.” In my case, it means sitting in my easy chair and closing my eyes. I believe in meditation—I practice it daily—and every Saturday morning I print out my portfolio of 45 or so stocks and my sector weightings, look at them carefully, and then sit in a chair and meditate upon the data.
I promise you, there is nothing occult about the exercise. I am not looking for divine guidance, although if it were offered, I believe I would accept it. In fact, what is most noteworthy about the process is that it produces some wonderfully mundane benefits.
Watch the big picture. As a hedge-fund manager, I study arcane details about my holdings all the time. But, overwhelmed by the hurly-burly of trading and research, I sometimes lose track of the big picture.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Example: After I added to my position in Apple (symbol AAPL) this spring, the stock surged 9% in a week’s time. I was thrilled—until Saturday morning. That’s when I forgot about my outsize gains and focused solely on the fact that Apple now accounted for 8.5% of my portfolio. That was way too much, especially given CEO Steve Jobs’s health problems. I soon cut my holdings in half.
Apple’s surge coincided with a liftoff in other technology stocks. I knew tech was my largest sector weighting, but I didn’t realize until my meditation that it represented 27% of my portfolio. Did I have that much faith in a resilient global economy? Actually, no. So I cut back on tech. And I bought some shares of Anheuser-Busch InBev—though not because I had just quaffed five cold ones.
Right before the BP oil spill, I started selling energy stocks. When the spill occurred, I dumped my longtime position in Noble Corp. (NE), an offshore driller. A smart move. Or was it?
I didn’t realize until the following Saturday that the sale had left me without a single energy stock. Given that I thought the ultimate impact of the spill would be higher rather than lower prices, this posture made no long-term sense. Although each sale of an energy holding seemed reasonable, collectively they put my portfolio at risk. After all, energy accounts for about 10% of the market’s value.
If the sector rose 10% and I owned none of it, I would quickly lose one percentage point in relative performance versus the market. The following Monday, I purchased an exchange-traded fund that is a direct bet on higher oil prices.
I meditate on the individual-stock level, too. For example, I added to my position in Motorcar Parts of America (MPAA) after it announced that quarterly earnings would be great, only to see the share price drop. Then Motorcar actually announced the earnings, and the stock soared. Go figure. So now, this company, which carries a market value of only $75 million, accounts for 2.3% of my portfolio. Is that too much? Probably.
You may not have to study your portfolio weekly, but I think we all have blind spots when it comes to money management. We tend to ignore the dogs that have hurt our performance for years. Acknowledging them is just too painful. Well, meditating on your portfolio forces you to look at those dogs—and their fleas. Likewise, we can be so giddy about a big winner that we fail to notice that it has either begun to lag badly or that it has grown to encompass 25% of our portfolio. Both despair and euphoria can blind us.
So we need to do a mental, if not literal, rebalancing of our investments much more often than once a year. To paraphrase Socrates, an unexamined portfolio is not worth having. A calm but rigorous look at what you own can work wonders.
Columnist Andrew Feinberg writes about the choices and challenges facing individual investors.
-
I'm 54 with a $320,000 IRA and will soon be self-employed, earning about $120,000 per year. How much should I be saving for retirement?We asked financial experts for advice.
-
This High-Performance Investment Vehicle Can Pump Up WealthLeave online real estate investing to the beginners. Accredited investors who want real growth need the wealth-building potential of Delaware statutory trusts.
-
Dow Dives 797 Points as Government Opens: Stock Market TodayThe process of pricing and re-pricing realities old and new never stops, and next week promises to be at least as exciting as this week.
-
Dow Climbs 327 Points, Crosses 48,000: Stock Market TodayMarkets are pricing the end of the longest government shutdown in history – and another solid set of quarterly earnings.
-
Stocks Close Out Strong Month With Solid Amazon Earnings: Stock Market TodayAmazon lifted its spending forecast as its artificial intelligence (AI) initiatives create "a massive opportunity."
-
Stocks Hit Fresh Highs Ahead of the Fed As Earnings Pump Optimism: Stock Market TodaySHW and UNH were two of the best Dow Jones stocks Tuesday, thanks to solid earnings reports, and MSFT closed with a $4 trillion market cap.
-
US-China Trade Hopes Send Stocks to New Highs: Stock Market TodayApple and Microsoft are on track to join Nvidia in the $4 trillion market cap club.
-
Dow Adds 472 Points After September CPI: Stock Market TodayIBM and Advanced Micro Devices created tailwinds for the main indexes after scoring a major quantum-computing win.
-
Dow Beats 334-Point Retreat on Tech Bite: Stock Market TodayInvestors, traders and speculators wonder whether this remains a Magnificent 7 market and how long this AI-driven bull run will last.
-
Dow Adds 516 Points on Broad Optimism: Stock Market TodayEasing trade war tensions and promise from early earnings reports has investors looking on the bright side to start the week.
