What Other Bloggers are Saying

NOTE: The 2nd edition of The rookies Guide to Options is now available. The retail price is $27 and amazon.com is currently offering a discount. If any Options for Rookies Member wants a copy, I can send it to you at 1/3 off, or $18. Free shipping to addresses in the USA.


From Tadas as the excellent blog, Abnormal Returns.

Pay special attention to the last paragraph.

Asset allocation and the challenge of avoiding tunnel vision
June 7th, 2013

It’s really easy to get sidetracked when it comes to investing. Indeed investors can get tunnel vision focusing on some small matter to the exclusion of others. All that matters in the end for investors are the real, after-tax returns on their portfolio. However we spend most of our time obsessing about the latest economic release or the performance of the latest hot new stock.

Josh Brown at the Reformed Broker notes many examples of strategies that have captured investor’s attentions only to fall by the wayside. There is never a shortage of these strategies because there is always something working. For the vast majority of investors these strategies end up being a distraction from the things that matter most for their performance.

James Picerno at the Capital Spectator looks at this phenomena in relation to asset allocation. The purpose of any asset allocation program is to try and generate acceptable risk-adjusted returns. As we have seen investors like to get off track and focus on either the best (or worst) performing asset class. Picerno writes:

The allure of focusing on one asset class at a time, and obsessing over its outlook, keeps us from concentrating on those variables over which we have some limited influence, namely, asset allocation and rebalancing. In fact, most of your success (or failure) will be closely tied to how and when you rebalance across time…It’s easier, of course, to obsess over individual securities and asset classes, one day at a time, in isolation. But don’t confuse intellectually comforting preferences with strategic wisdom.

Which begs the question: how are you spending your time? Are you obsessing over some small matter or are you focused on the big picture of overall portfolio design? The honest answer to that that question might surprise you.

I’m as detail oriented as one can be. So I understand when readers ask about the details of how a specific number was calculated for one of the tables in The Rookies Guide to Options. Does it really matter? Isn’t it more important to understand the principle being discussed?

It is so easy for investors to lose focus. Maybe diversification is not an issue for you, but Tadas’ warning about losing focus on overall portfolio design is worth noting.

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