When most people think about successful investing, they tend to think bigger is better. More companies, more managers, more trades, more funds, more more more. The funny thing is that after some experience either doing it yourself or working with a Portfolio Manager, the successful investor starts to reverse that kind thinking. Instead of going on a quest to add more, these investors try to eliminate the unnecessary. They pare down their portfolios until they can’t take away any less. Does making things simpler actually create better results?
Many times when I’m meeting a new investor, one of the things I hear most often is that they don’t understand their current investments. Either the specific funds they’re invested in are overly complex, or they’re holding a large number of individual stocks that are hard to keep track of, or they don’t understand how the different parts of their portfolio are supposed to cooperate. I hear comments like “even when the market goes up I don’t see growth,” or “I can never tell if I’m doing well,” or the classic, “I don’t even bother looking anymore.”
Some of the most successful investors of the last 50 years are experts at making things smaller. They invest in only a handful of companies, trade infrequently, and generally spend their time reading (as opposed to jumping between stock ideas). They avoid the temptation to be experts at everything, and instead focus only on where they know they have a long term edge. The more familiar names who’ve taken this very different approach include Warren Buffett, Bill Ruane, and Walter Schloss. Buffett actually wrote an article about them, The Superinvestors of Graham-and-Doddsville.
By reducing the number of moving parts, investors stand a better chance at achieving what they’re missing the most. It’s not returns. It’s clarity.
Ben Kizemchuk is a Portfolio Manager & Investment Advisor with Altus Securities Inc. in Toronto. He offers financial planning and investment management for high net worth Canadian investors. Ben focuses on high quality investments, the Growth and Income Portfolios, low risk investing, and reducing tax.