“Aaahhhhhhh!” That is the scream of joy my 14 months old son makes when he sees the shiny new yellow school bus in my hand.
He drops everything he has and bolts straight for the gleaming widget. Like a squirrel attracted to an acorn.
When he sees something new, he acts just like the squirrel, which spends its entire life chasing fresh new acorns. Squirrels would go out of their own way, climb high up a tree to the end of branches just to pluck that prized, burnished, oak brown color of an acorn.
Then what do they do with it? They bury it, then forget about it.
Wait a minute. That does sound like me when I started investing. “Geez.” One moment I’ll be all excited about “deep value” stocks, hunting down heavily discounted securities and planting it in my portfolio. Then, the next moment I’ll be charging at the next high growth technology stock, thinking I’m going to make an obscene multi-bagger return. The season changes and I’ll continue chasing “small cap” stocks next. It never ends.
Before I know it, my portfolio was filled with a slew of acorns which I have no idea why I bought in the first place. It certainly felt like I was “squirrel investing”. Chasing that next shiny stock. Putting it in my portfolio, then forgetting about it.
I did not have a portfolio blueprint which I religiously stuck through. I began chasing “hot” ideas and constantly revised my portfolio strategies. And because my strategy kept shifting, it felt like my investing process was all over the place. My returns stink.
Plus, I would never forget the huge losses over Coach Inc, a US-listed stock which I overconfidently made a significant bet on.
Then it hit me one day. I realized all these successful investors out there have a clear and definitive strategy, but more importantly they stuck through it. Charles Royce on small-cap investing, Seth Klarman on special situations investing, Ray Dalio on multi-asset macro, Teng Ngiek Lian on quantitative value and so on. You get the picture. They might not perform every year but over time, they still rode through the markets with a singular strategy.
I figured I need to focus on just one strategy, not having multiples of it and always changing it.
Understand what our investment objectives and risk appetite help establish a long-term plan. Whether you like to invest in blue chip companies, buy high dividend yielding stocks, owning a basket of “cheap” undervalued small-cap stocks. Stick to a plan which you feel most suited to your personality. This way, it keeps us from chasing the next “hot” stock.
If you already manage a basket of strong dividend stocks and bonds, obviously Amazon, Tesla, Apple or Microsoft stocks is not going to fit into your portfolio.
“But why can’t I just add Amazon, Tesla or Apple to my ALL-STAR dividend portfolio for diversification?”
Sure, but deviating away from a core strategy requires one to use an entirely different set of analysis to process the next suitable idea. Income stocks look at consistent dividend pay-out and making sure a fair amount of earnings is paid out in dividends. On the other hand, technology stocks require a lot more finesse in assessing a founder’s acute knowledge of its company’s products and services adapting to the fast-changing technology landscape. To sharpen each of these analysis takes time.
So, squirrel investing. Anyone?
If you will excuse me, I need to head out to buy a new toy for my son.