Trust Your Gear

The above picture was posted on Facebook by Bivouac which is kind of like REI in New Zealand. The caption read trust your gear. Investors need to trust the long term strategy they have chosen for their portfolios and by extension their financial futures.

Investing can be as simple or as complicated as anyone wants to make it. The building block here is that an adequate savings rate combined with proper asset allocation and reasonable diversification gives people a very good chance of having what they need when they need it. From there all of the decisions that people make, behavioral defects they succumb to and extra time they spend on their portfolios will either help that a long to a little better result or hinder the end result which could mean simply coming up a little short or being completely wiped out.

Reasonable diversification could be as simple as 50-70% in an ETF like iShares All World Country ETF (ACWI) and the rest in iShares Aggregate Bond (AGG). The performance will never be lights out (in a good way) but will never get taken down any sort of oversized bet like a mutual fund that got caught with 50% in financials in 2008.

On the complicated side of the ledger are quant mutual funds with thousands of positions making dozens of trades every day (this is not to say these types of funds are good or bad simply that they are complicated).

Most people are in between those two extremes. Chances are whatever strategy you have chosen to implement for yourself or whatever strategy you pay a professional to implement for you has a very reasonable basis to work just fine as long as there aren’t too many behavioral defects allowed to get in the way. Intuitively I think most people can accept that a financial plan that includes savings, proper allocation, diversification and avoids freak outs can get the job done even if that is difficult to remember when things are hitting the fan.

To me this places a lot of importance on everything but performance. If you can save, allocate, diversify and then not screw it up it should work out. I’ll repeat that, if you can save, allocate, diversify and then not screw it up it should work out. From there if you can find a way to add value then you have increased the odds that things will indeed work out financially.

Adding value can come from several directions. The obvious way of course is to add value by outperforming markets over some period of time relevant to you whether you do this or pay someone to do it for you. Beating the market every year is of course unrealistic for most the vast majority of investors but if an investor avoided the decline in 2008 and avoids the great decline of 2023 (not an actual prediction) and stay reasonably close the rest of the time they will come out way ahead.

Another form of value add is avoiding panic. Again people can do this on their own or pay someone to help them not panic but anytime the market spikes lower in a shocking fashion there are always investors who panic sell right into the low of those spikes and this will always be the case in the future. Avoiding this behavior is very prominent in the not screw it up part of investing.

This blog and all the posts about foreign and the 200 DMA and themes and all the rest are how I try to add value. Chances are some aspect of my thoughts appeal to you to make this blog one of the ones you read and you probably also take ideas from other places/people on how they try to add value but underlying all of that is trusting your gear, that is trusting that saving, allocating , diversifying and not screwing it up will do most of the work for you and any value that can be added from there is gravy.

7 Comments

  1. It is difficult for me to follow the logic in the 200 DMA strategy. For example, Ben Graham counsels that if there were a time to overweight in stocks it would be after a large decline when the potential for greater returns is highest. To me, selling when the price is below the 200 DMA is counter intuitive.

    Attempting to smooth out the ride as it were would seem to lower long term returns.

    Reply
  2. I believe that the “200DMA strategy” is a momentum investor’s strategy, while Buffet et. al. are value investors…. two different approaches.

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  3. 09:45 question:
    Can you tell us the name of the momentum investor whose networth is over 60 billion???

    Reply
  4. I have invested in RRGR (both retirement and taxable accounts), therefore I have bought into his philosophy since i’ve been reading this blog the last 4 years. I will say though, as an amateur, ‘most’ fund/stock jockeys philosophy makes perfect sense when I read it, then i am often somewhat ‘put off’ when the results they get in their own fund are simply average or even not so good, e.g. hussman. Anyway, at 54, what drew me to RRGR was the attention to indicators signaling a downward movement, i.e. 200 DMA and inverse yield – i also make my own stock picks with a portion of my retirement funds, including options, and have done relatively well, not to mention it’s fun. I’m thinking all of this, with a slightly > 40% savings rate, will leave me with ‘enough’ when I retire. Thanks Random!

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  5. This is a terrific post. So simple, and so sensible. Cornerstone stuff. Thanks.

    Just out of curiosity, could I ask why you chose ACWI for your one-stroke equity holding over VT? VT starts out already with a lower expense ratio (.17 vs .34), but then seems to have outperformed ACWI by a fairly consistent 30 bps each of the 3 years to date.

    Am I missing something?

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  6. Anon I didn’t think about VT but you are correct about being the same exposure so if it is cheaper and done better then of course it would make more sense.

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  7. Hi roger a huge amount of common sense in your article, above all ‘dont screw up’. Charles Ellis wrote Winning the Losing Game and advised best results come from eliminating mistakes rather than seeking winners. Howard Marks and Seth Klarman have given similar advise. I spend most of my time aiming not to screw up, especially in behavioral matters and on the whole it gives consistant, stress free results JJ

    Reply

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