PEOPLE LOVE to talk about themselves. Today’s subject: me. Over my three decades of investing, I have tried to cultivate three traits. In other circumstances, none would be especially endearing. But as an investor, they’re my best friends.
1. I’m clueless. Occasionally, I forget how ignorant I am. I might convince myself that I know where interest rates are headed or that I’ve found a stock market sector that’s truly undervalued. Fortunately, after 30 years of investing, I have been wrong often enough in my forecasts that I almost never act on them.
2. I’m cheap. I may not be able to predict the market’s direction or figure out which stocks are bargain priced. But there’s still plenty to keep me busy. I am constantly striving to reduce my investment costs. That means sticking with low-cost index funds and doing everything possible to hold down my portfolio’s annual tax bill.
3. I’m a control freak. I don’t just try to control my investment costs. I am also intensely focused on controlling risk. Taking risk, of course, is a necessity if you want to earn healthy long-run returns.
But I don’t want to take more risk than is necessary, so I’m always looking for ways to better diversify my portfolio. In recent years, that’s meant adding small stakes in foreign real-estate investment trusts and gold stocks to my portfolio, and also increasing my exposure to overseas stocks. It also means regularly rebalancing, so market movements don’t drive my investment mix too far from the target portfolio weights I’ve set for myself.