Getting a Perspective - It's Always Good to be Uncomfortable

This essay addresses the issue:

getting from here

to here

Background

In a previous post (see below), I reviewed my portfolios with a view to trying to understand gains and losses over a 20 year time frame starting  in 2007.  

Portfolio Management - A Few Thoughts About Gains and Losses

The results were eye opening:

1. Major gains in the value of the portfolios were due largely to the outstanding performance of a few investments.
2. Major losses were attributable to a general decline in the market as a whole - not outsized losses due to the poor performance of a few individual investments.  

It led me to question previous assumptions I had about the basics of portfolio management; namely,

• the benefits of diversification in order to distribute risk more evenly
• the optimum number of holdings in a portfolio (20 to 30 are often cited as being ideal) 
• the dictum of buying and holding through thick and thin (the thesis is that long-term trend in the market, when measured over decades, is always "up")
• the convention that one should limit the size of an individual holding to no more than 5 percent of a portfolio and then "rebalance" 

The academic literature and convention that I had accepted as gospel simply did not hold up in the light of my practical experience.

I reached two conclusions:

1. It is useful to look at portfolio performance with a new perspective - one that goes beyond the usual monthly, yearly outlook - viewpoints which are artificial and which can blind one to the dynamics of a portfolio's performance
2. I was able to detect some identifiable patterns and hope that I will incorporate the lessons learning in future investment activity.  

Extending the Review

I extended the review by assessing how I spend my time on things financial and discovered that I fell into the habit of following a routine path: reading the same sources and downplaying viewpoints which didn't conform with my habitual way of thinking. 

It's easy to get into an "investment rut".  It's comfortable.  It's also dangerous, especially with the advent of unanticipated events and/or the inability to adapt to changing circumstances.  

I'm reading a beautifully written book entitled, The Gentry: Stories of the English by Adam Nicolson.  It chronicles the rise and fall of several families from 1410 to the present: how they rose from obscurity, shone briefly and then declined in episodes ranging from a generation or two to a few hundred years.  

There were a few takeaways:

• the precarious nature of society in the past and present and the role of chance in rearranging the pieces on the game board of life 
• how pride in one's family can be both a balm and a hinderance 
• the rather closed nature of the families' social circles and the strictures posed by social expectations 
• that change offers opportunities to some and pitfalls for others who fail to adapt

There is yet another theme which is buried in the text; namely, that there is a strong element of deliberate personal choice which contributed either to the downfall of a family or its rise to wealth and position.  In some instances, family members, when presented with options, deliberately chose paths which were disadvantageous to their future well-being.  Was this a product of a narrowness of vision and an unwillingness to change perspective or was it the result of "tiredness" - a loss of drive and resilience?  While these processes took many decades to unfold, there are lessons for the shorter term when it comes to investment.

1. It literally pays to be open to new trends.  A case in point is the cannabis industry: easy to discount as a fad and to make moral judgements.  However, a few alert individuals have done well by moving early and taking measured risks.  
2. It pays to expand one's horizons beyond the usual social circles and sources of information.  It means developing new sources, making an effort to understand differing viewpoints, always questioning one's viewpoints and approaches to investing.  
3. Being willing to take the first steps on new paths.  

What this means to me:

• I never read the financial press and increasingly, I don't read newsletters or annual reports by money managers. 
• I make a deliberate effort to expand my knowledge and to live outside my comfort zone. 
• When I am out and about, I take an active approach to my environment: always look at the way people conduct themselves (e.g. what they wear, how they spend their time, what they eat, drive); question how people make their living (note trends in stores on the street, look for emerging products/services and those with a lot of competition or in decline) ... in short making an effort to be more sensitive to the world around me and to the potential for investment.  A ride on public transportation, a walk down main street, a visit to the library ... all these things suddenly become more interesting ... even more so when you engage in conversation with others ... much better than burying one eye's in a book or in a computer screen.  

As a result, my "learning time" has become more interesting and productive.  I find myself traveling along lines of inquiry which are not well visited by members of the "investment community".  Additions to the Financial Log Book, CO2 GRO and Clean Seed Capital were the product of this activity.  

The picture of the pathway was taken during a walk on a stretch of the Camino de Santiago de Compostela where a tunnel of trees encloses a narrow slice of Spain, making one oblivious to the surrounding fields and even the sky.  The viewpoint in northern Georgian Bay overlooks one of my favourite anchorages.  One day we decided to bushwack our way to the crest of the La Cloche Range.  It was a sweaty undertaking but we were rewarded with a breathtaking view.  If you look carefully, you can see several sailboats beyond the islands.  Almost no one ventures into this anchorage as it's off the main route.