The talking heads know it’s the time of year we reevaluate our financial positions, and the financial headlines remind us just how volatile the market is. Do something! Take Action! But we must put on our best Sherlock Holmes imitation as we face the next twelve months of challenges and opportunities.
The lessons of sound investing aren’t new. We know these lessons well. But too often we let ourselves stand in the way of our own success. Regardless of recent market activity, knee-jerk reactions and wholesale portfolio changes are often poor choices.
How do we get our egos and emotions out of the investment process? Discipline.
Discipline allows us to heed the lessons we’ve learned over and over. Discipline allows us to rely on long-term goals and investment decisions, not on reactions to market volatility.
At AssetBuilder we embrace the workmanlike task of building diversified portfolios. This approach offers advantages over time. Moreover, the expense of diversification declines year after year. Our use of volatility measures and mean-variance optimization helps allows us to build risk-efficient portfolios. This is the discipline we adhere to. Not because it is a sure and perfected thing, but because we see the benefits over years and decades.
We stand prepared to revise what we do and how we do it. Not on a daily, weekly or market cycle basis, but when clear and widely supported evidence shows improvement can be made. That’s why we removed commodities from our portfolios. It’s why we added Novy-Marx research based funds.
Our steadfast adherence to a long-term strategy based on sound evidence allowed these lessons to materialize. Without discipline, results and new evidence are obscured by constantly shifting positions. With discipline to stay the course today, the course for tomorrow becomes clear.