Clean Bill Of Health

Recently I turned 40 and so I went today for a check up just make sure everything is OK (it is). I think there is an analogy here for managing your portfolio.

There is not much that is pleasant about getting poked and prodded but it is what you do so that small problems, if there are any, don’t become big problems a little later.

A small problem in your portfolio might be having too much of one thing and not enough of another. Over the last month I have heard from a lot of people with too much in emerging markets, that’s been one problem (large or small depends on how much you have) and although it has not come up a lot in the comments perhaps people have too little exposure to consumer stocks.

As the S&P 500 has fallen close to 4% this month consumer stocks have only fallen 2% (as measured by IYK and IYC). This is important. If you had little or no consumer
exposure this past month and too much in emerging markets you are probably down a lot more than 4%.

Not everything in a portfolio will work or be interesting for a given period of time. One idea that I have written about before is not knowing where leadership might come from. You can think it will be tech, for example, but the consequence of being wrong depends on how much you tilt your portfolio toward your expectations.

The typical investor (as differentiated from a trader) does not need to hit a home run every quarter. An occasional checkup of sorts to make sure you have not made a bigger bet that you realize is a good idea but I know from comments and emails that not enough people do this.


  1. Hi Roger,

    I’m glad you had a clean bill of health!

    Can I ask you a question? I would like to invest in one of the new semi-active ETFs – Powershares Earnings Surprise ETF, symbol PZJ -but am concerned that 1. it would be difficult to get a good price cuz of large spread due to low volume, and 2. if PZJ became unpopular and had to be liquidated, I might get less than the full value of underlying securities. I’m very intrigued by the idea of quantitative ETFs like this, since I think you can get a better return, espescially with small cap stocks, than with a straight indexing approach. Any thoughts?

  2. Of course you make a good point, but while I have lost 8 to 9% recently I am still up 3% for they year. I think that compares pretty well to the S&P 500.

    I may have to live with twice the volatility, but my gains in a cyclical bull market seem to be worth it. Should we enter (or have entered as some might argue) a bear phase my portfolio would need a lot of adjustments or I would have to be patiently willing for things to reverse.

    I do not enjoy the down days, but still think the risk reward is there.



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