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Back in mid-January I decided I owned too much of too few things. The big American tech names had crept up to take an uncomfortable slice of everything I held, and with being recently retired, that started to feel less like a strong portfolio and more like a bit of a risk. So I trimmed some of it back.
A portion of what came off went into an Asia Pacific fund, ex-Japan. The valuations looked decent, China was starting to spend money again, and it felt good to be a bit less lopsided. I didn’t agonise over it. It felt like the sensible thing to do, so I did it.
Four months later that position is up 40%.
Which is lovely. Genuinely lovely. And then, right on cue, a little voice piped up from somewhere in the back of my head.
“Should’ve put more in.”
And there it is. That voice. I’ve come to think of it as the world’s least useful financial adviser. It never showed up in January when I was uncertain and trying to make a reasonable call. It waited. It lets things play out. And then, once the outcome was known, it materialised with all this confident hindsight, making your perfectly reasonable caution look like timidity and your prudence look like you bottled it big time.
The thing is, a 40% gain in four months sounds brilliant in retrospect. But that same position could have dropped 20% before recovering, and a bigger stake would have tested my nerves considerably. I know myself well enough to know that. The voice conveniently forgets all of that. It’s a greedy little beast that only ever wants more of whatever just worked.
If the market had turned the other way and dropped 20%, that same voice wouldn’t be calling me timid—it would be berating me for being reckless. The voice sets a trap where it wins either way, changing the rules of the game only after the whistle has blown.
There’s a name for this: outcome bias. Judging a decision by how it turned out rather than whether it was sensible at the time. The driver who runs a red light, gets away with it, and feels vindicated. The result and the reasoning are separate things, and mixing them up is how you end up abandoning good habits and repeating bad ones.
But if I’m being honest with myself, there’s something else worth admitting here. This wasn’t some bold strategic move. I’m an index investor. Always have been. What happened in January was less “shrewd reallocation” and more “bloke who’s recently retired getting a bit anxious about having too many eggs in one basket.” It worked out well, but I would never let a good result rewrite the story of what I actually did and why.
That matters, I think. It’s easy to drift. A good outcome whispers that maybe you’re better at this active stuff than you thought. And before you know it you’re making decisions that don’t really suit who you are as an investor, chasing an idea of yourself that only exists because one trade went well.
That little voice will be back. It always comes back, sometimes as regret, sometimes as FOMO, occasionally as a suspiciously confident feeling that you’ve finally figured something out. The job isn’t to argue with it. Just recognise it, ignore it, and get on with things.
The 40% is a happy bonus. Nothing more, nothing less. I’m just a boring index investor, not an investment genius.
Mark, I enjoyed this article because it describes a conversation I suspect many of us have with ourselves. Since retiring, I’ve noticed that little voice isn’t limited to investing. It also shows up when I think about past business decisions, career choices, and even life opportunities. With hindsight, everything seems obvious.
What struck me most was your point about judging decisions based on the information available at the time, not on the outcome. A good result doesn’t necessarily mean it was a good decision, just as a bad result doesn’t automatically make it a poor one.
I suspect one reason index investing works so well is that it helps protect us from that voice. It removes the temptation to constantly second-guess ourselves and chase whatever happened to work last time.
Congratulations on the 40% gain—but perhaps even more importantly, congratulations on not letting it convince you that you’re an investment genius.
Look out, I have another client story.
A client got very lucky with the purchase of an IPO, (First Solar). His $20K investment soared to over $200K in less than a year. He was a legend (in his own mind). Subsequent purchases of IPOs did not go well at all. We had recommended he take the profits from First Solar on day 366. He didn’t, and a couple years later cashed out around $75K.
Nice post as usual Mark.
Your experience prompted me to reflect on my ongoing journey to reduce the number of individual stocks in our portfolio each year on the way to an (almost) 100% indexed portfolio.
Each year during my annual rebalance exercise, I target select individual holdings (most held for a decade or more) that I will endeavor to sell in the coming year or two. I always promptly invest the proceeds in one of the indexes that needs a rebalance % “bump up”. Let’s call the selling side of that exercise that what it is, I am “timing” the sale of the individual equity trying to get that “exit price” I conjure up.
On the plus side, I do not try to time the reinvestment in the indexes and reinvest immediately.
My track record on this annual “timed” portfolio simplification exercise is mixed to be sure and that’s without bothering (in most cases) to examine how things would have worked out had I just sold each equity and invested in the indexes in January vs 12-24 months later.
I know better than to try to “time” but allow myself a bit of grace because at least I am sticking to annual progress toward a goal of holding no more than 5 individual stocks within a set % allocation of the overall otherwise indexed portfolio. I will undoubtedly achieve goal within this decade.
Once I have “indexed” reinvested funds I have no problem just reallocating/rebalancing to target % once a year with ruthless, non emotional efficiency.
That said, I don’t think I’ll cure my self of timing on future sales of the rest of my individual equities.This year waiting paid off handsomely on one energy equity sale and I even added to an existing position on one of my long held equities that is on the “sell” list after it dropped well below its 5 year average.
Oh well, at least I did not add a ticker symbol to the portfolio! Those days are over. Again, it’s a journey and “knowing thyself” helps with navigation along the way.
Excellent!
Excellent post Mark.
I’d say the way you should look at it is since the fund has increased 40% you are now more diversified than you expected.
Mark, I suggest you keep a printed copy of this piece in the top draw of your writing desk, to pull out and read every so often to remind yourself of it’s good advice.
Well stated.