Psychological challenge of sticking with a volatile portfolio

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Adamski
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Re: Psychological challenge of sticking with a volatile portfolio

Post by Adamski »

I have difficulty with the recent volatility in stocks. No way round it for me I've had to add bonds and gold to reduce volatility, accepting lower overall returns. And agree with stepping back and not checking prices and news feed so often.

Dave
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Re: Psychological challenge of sticking with a volatile portfolio

Post by Dave »

@Lucky C

In my view, stocks don’t always (although they often do) spend a lot of time at an efficient price, but they tend to spend time outside (in either direction) of intrinsic value range and then eventually approach and pass through intrinsic value with sufficient regularity (5-10 years on the upper end) for a mean reversion strategy like value investing to work. Depending on what you own, it’s not really a big problem if your investment stays undervalued for even this long period of time, because if you buy a stock that pays dividends you are getting a larger yield (compared to what you would on a fairly valued stock) while you wait, if it buys back shares your share of the pie is growing at an attractive rate from undervalued buybacks, and if the business is growing that growth is applied on your lower base. Basically it’s the same case for all scenarios – you are getting some amount of return on a smaller base relative to fairly priced stocks, which results in superior outcomes over the cycle. For an example of an industry that had perpetually undervalued stocks, study the US tobacco industry. The industry was one of the best, if not the best, performing in the 20th century, despite being undervalued perpetually. Huge dividend yields and solid growth on an undervalued stock price leads to good outcomes.

Look at a simplistic case. Say there is a stock fairly valued at $100 that pays a sustainable $5 dividend, 5%. If you can buy it at $70, you get a 7% dividend. It really doesn’t matter how long it takes the price to hit $100 or how efficiently the broader market is priced - you’re going to do well if you can find this sort of situation. It is true that the faster the price-value gap closes the better you will do and the higher your outperformance will be, but if you own the right kind of companies (i.e. not businesses that require some catalyst or event to occur in the next several years or companies that destroy shareholder value via bad capital allocation) it will work out even if the price value gap takes a long time to close.

I hear what you’re saying about today not being the best time to be an investor, most likely true. But there are areas of the market that are much less efficient than others, where your competition is much more limited. It will force you to get away from having opinions on the securities with tons of analysts that everyone likes to talk about like Boeing, Apple, Wells Fargo, but that’s the whole point. “Fish where the fish are.”

And yeah, of course I’d rather be an investor when the market is overall more undervalued such that there is more of a tailwind. But in any event, the best course of action is to generate alpha rather than accept 0% by sitting in cash. And there are definitely plenty of stocks out there that offer >0% ten year returns.

By the way, it’s probably worth stating that the market is not at a price that offers 0% returns for the long-term investor, and by long-term I don’t mean 5 years or even 10 years. I hear a lot of people talk about overvaluation as if it means you are certain to receive a negative return. That’s not the case from the long-term perspective at all. A stock can be overvalued and offer a positive return, it just means that the current price offers returns that are either below the market level of returns (if the market is reasonably priced) or that the return is low relative to what this sort of asset earns based on a historical basis. There are many paths that the price can take going forward, either with rapid declines and later rises, or slow rises now. But unless you are a trader with a short-term perspective, it’s not correct to say the S&P 500 offers negative returns at today’s price. If you agree it offers something above 0%, it’s worthwhile to do some amount better than that (alpha), regardless of the actual magnitude of the resulting return number.

@shemp

I agree. To add to my point, I think part of why some people feel uncomfortable investing and/or dealing with volatility is because they actually have very little understanding of what their funds are on a fundamental level so it’s hard to evaluate if the price movement “makes sense”. When you own individual stocks – or as you suggested you really understand your funds – that problem is greatly diminished. Realistically it’s harder to deeply understand a pool of securities, but you can move in that direction and it will help with the psychological elements. I definitely agree that there is nothing wrong with this if you take the right attitude coupled with a sufficient level of understanding. My point was just to suggest that some of that discomfort with volatility with funds may actually lessen when owning individual stocks as you have a greater degree of understanding, which is perhaps counter-intuitive as most individual stocks will have more volatility.

Suggesting the psychological discomfort of sticking with a volatile portfolio is a function of how volatile the portfolio is, how well you understand your portfolio, your temperament, and other factors.

Lucky C
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Re: Psychological challenge of sticking with a volatile portfolio

Post by Lucky C »

Dave, your explanations make perfect sense from a value investing perspective with my only nitpick being that the next 5-10 year returns could be critical for a retired person withdrawing more than a couple percent per year, since sequence of returns risk looks pretty serious right about now. But indeed for a skilled value investor without a lot of correlation to the US indices and not needing to withdraw a lot of capital, they should be in better shape.

For a trader/speculator/tactical investor on the other hand, there are a whole different set of issues to think about and possibly worry about, some of which were touched on e.g. the validity of backtesting.

Based on my knowledge and experience as well as the way markets look right now, trading is much more appealing to me. However if my skills/knowledge in the value investing world improve, that would motivate me to add it as an uncorrelated strategy. More favorable valuations in the broad market would be a nice bonus though.

shemp
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Re: Psychological challenge of sticking with a volatile portfolio

Post by shemp »

1. Market cap to USA-only GDP should be higher now than in the past because corporations earn more profits internationally than previously. Ratio should be less because publicly traded corporations constitute less of total USA business activity than in the past (lots more private equity). Not sure how these factors offset each other.

2. There is considerable GDP inflation baked in at this point. If you inflate nominal GDP by 50% over 20 years, or just 2% per year, while keeping Wilshire 5000 price stable, all the excess in your linked chart disappears and then some, with no collapse required. Moderate inflation over a decade or two solves all sorts of money problems, without a big bang that would hurt powerful interests. I use 50% and 20 years for illustrative purposes, there are many other possibilities.

3. Fed and Congress together have now made it clear that they will not allow deflationary collapses. They said or hinted as much in 2008 and backed their words up with actions, but in the end monetary/fiscal policy then was not as great a giveaway to Wall Street as it is sometimes described. Fed lent to banks and took preferred stock or warrants in exchange, so they actually lost very little on the deals. Of course, there was an implicit subsidy in their lending, but it's a far cry from $3 trillion in actual deficit spending on the fiscal side like we are seeing now. More investors than ever are now convinced deflation is off the table, and when you take deflation off the table, equity risk premium shrinks, from maybe 3% to under 2%. If we additionally assume equilibrium long-term real risk-free rate (30 year TIPS) has dropped from 2% to 1%, then equilibrium total equity returns drop from say 5% real to 3% real. Since stocks are perpetuities, these changes rerates equilibrium stock prices up by 67%.

classical_Liberal
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Re: Psychological challenge of sticking with a volatile portfolio

Post by classical_Liberal »

@shemp

I mostly agree with your analysis wrt inflated market cap:GDP and CAPE. What I find interesting (or concerning for me) is that if the Fed's policy remains, no deflationary events at any cost, basically what it has done is stabilize public equities pricing and lowered the yield on invested capital in that market.

This is particularly concerning to a noncorrelation-type investor such as myself. The reason being is that the de facto lower risk rates on treasuries have moved from 2ish percent real to 0 or -% real. Which means it's costing much more in growth periods to hold mid to long term treasuries. Also, if the equity market is propped up in any potentially deflationary period, both the depth and length of bear markets will decrease. Meaning that the potential return on noncorrelators during these times are also probably limited when compared to historical backtesting. There's still the real asset noncorrelation, RE, gold, etc. My assumption is that they would benefit somewhat from this policy, but they have many other independent factors influencing pricing as well.

IOW, the whole basis of noncorrelation investing is shifted. It costs more to hold noncorreltors in good times AND they provide less benefit in the shorter, less dramatic bad times. Add this to a decreased equity risk premium and the returns of equities in the good times are stunted as well. This could really damage the long term benefits of the type of investing I subscribe too. Essentially, it could make all the MMM type 90% VTI investors more right.

I'm not sure if I'm describing my thoughts on this well?

Anyway a shout out to @tyler9000 if he's still following along. Maybe I'll post this in the golden butterfly thread as well if we don't hear from him. I'd be really curious to read his thoughts on the matter.

Tyler9000
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Re: Psychological challenge of sticking with a volatile portfolio

Post by Tyler9000 »

I hear ya. :)

As I said back on page 1, I fully admit my perspective doesn't really address Lucky C's original question. Basically, I personally reject the implied assumption that learning to live with a painfully volatile portfolio is required for investing success. But I also value the other opinions here and don't want to be that guy beating the asset allocation drum to the exclusion of other valid approaches.

In any case, I'll at least offer a few observations:

1. From my perspective many of the posts in this thread exhibit a very old-school stock picking mindset. There's nothing wrong with that, but portfolio returns including multiple assets uncorrelated to stocks are more sophisticated than you may realize and can compete quite favorably with stocks alone with way less volatility and no active trading required. You just have to learn how to cook rather than hunt.

2. No, I don't think that today's low rates automatically negate the ability of treasuries to diversify a portfolio. If anything, convexity makes them even more useful now in terms of actively canceling stock volatility.

3. By my count the word "underperformance" has been mentioned 5 times in this thread (not including my own post). Perhaps some of the dissatisfaction with volatility can be attributed to the external comparison one chooses to evaluate their portfolio against. And remember that even the internal constant average return you feel like you missed out on in a bad year never actually existed outside of a spreadsheet. The real world is messy and uncertain.

4. And to expand on an earlier point, attributing your unhappiness to volatility probably isn't any more helpful or accurate than equating risk to volatility. Risk is the very real possibility that the money may not be there when you need it. And unhappiness is very often caused by either fear of that situation or regret after the fact. Fix the root cause unrelated to the markets (dissatisfaction with your job, desire to prove yourself to others, low savings rate that requires huge returns to succeed, etc), and you may be a lot happier even with the exact same investments.

Lucky C
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Re: Psychological challenge of sticking with a volatile portfolio

Post by Lucky C »

Tyler, you got me thinking about seeing what PortfolioCharts would say about my portfolio if I left allocations fixed, and it has helped alleviate some of my concerns, so thank you for that!

In my backtest spreadsheet my allocations vary wildly over time, but I calculated the average allocation for each asset class over the entire history of the backtest. Plugging those allocations into PortfolioCharts shows an average return of 6.9%, standard deviation of 13.6%, and Ulcer Index of 9.0 (deepest drawdown 28% and longest 6 years). Over 10 years, the minimum return was 0.1%, the median 6.6% and the max 12.0%. SWR of 5.2% over 30 years.

The Golden Butterfly (for comparison since it is mentioned so often) had an average return of 6.4%, standard deviation of 7.9%, Ulcer Index of 2.7 (max drawdown 11%, longest 3 years). 10 year returns: min = 4.1%, median = 6.3%, max = 8.3%. SWR of 6.4% over 30 years.

Even with a "dumbed down" constant allocation of my portfolio, I still would have gotten a high SWR and positive return over any 10 year period, with average returns higher than Golden Butterfly, so it would have easily met my goals and would never have failed me since our SWR is sufficiently low. On top of that, my portfolio has exposure to international/emerging markets which GB does not (should be better going forward due to relative valuations) and mine has a much lower bond allocation (should be better going forward due to historically low yields). So despite the higher volatility of GB vs. my portfolio, I would rather have mine than GB since I believe it should work better in the coming decade or so, while still meeting my investment goals at a minimum.

Now on top of that I have my trading strategy that alters this allocation much more than an annual rebalance would do. Historically this increased volatility but increased returns by a greater amount, while keeping the drawdowns under control (Ulcer Index would have been between GB and my portfolio described above).

Going forward, it would be foolish to have 100% confidence that my strategy will work as well as it has in the past in terms of both the high returns and low drawdowns. There are a number of factors that could limit returns in the future (e.g. lower growth) or increase drawdowns (changes in correlations or a wrong "signal" in the trading strategy). However I believe it would be too pessimistic to worry about the strategy making a complete U-turn in the future and start to lower returns to the extent that they would be lower than the fixed allocation version of the portfolio. Therefore I would expect that I would not get a return/risk profile any worse than the results shown in PortfolioCharts, which still has plenty of margin to meet my needs in case returns and drawdowns are worse in the future.

I could also also split my portfolio into variable and fixed allocations so that my returns and risk would be somewhere in between. This would help limit my risk of being too concentrated in one asset class at the wrong time when a black swan type of event does some extreme damage. But from 1970-today the trading portfolio has recovered well from any extreme events.

IlliniDave
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Re: Psychological challenge of sticking with a volatile portfolio

Post by IlliniDave »

Tyler9000 wrote:
Tue Jun 23, 2020 9:45 pm
You just have to learn how to cook rather than hunt.
I like that statement, although I'm not much of a cook, much less a chef or something.

IlliniDave
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Re: Psychological challenge of sticking with a volatile portfolio

Post by IlliniDave »

plantingtheseed wrote:
Sun Jun 21, 2020 1:12 am
One of the most troubling issues with index/asset allocation is how it has evolved to accept that risk is simply the variance (of return) from the mean. Only if life were that simple. The way it looks at the past "risks" to predict future "risks" presumes that future will simply be a repeat of the past. Not to mention that the model fails miserably, when faced with the non-normal distribution of asset returns that reality brings.

But the biggest problem facing asset allocation is how widely accepted it is as the "optimal solution" to investing, in terms of risk to return ...
I keep telling myself to stay out of discussions on this topic, but alas, here I go again. Apologies to all who have had to tolerate me on this subject before.

I think you'd be surprised at the level of overall financial sophistication of "index" investors. Remembering the years when I spent a lot of time over on bogleheads.org, I don't recall anyone (indexer or picker or other) who would wholly agree with the statement "risk is simply the variance (of return) from the mean". Unless maybe it was a discussion of the specifics/mechanics of Modern Portfolio Theory, which is interesting academically but has serious limitations practically. There's a contingent over there every bit as creative at coming up with every plausible doomsday scenario as folks here.

For some people volatility is a risk of sorts, especially at a critical junctures. Coincidentally I'm at that juncture now. Also, not everyone has a suitable temperament to weather higher volatility in their life savings. So even when volatility isn't a direct risk, it can drive people to behavioral mistakes that are pretty well proven to be a significant drag on wealth accumulation over a lifetime compared to those who avoid them. So there are valid reasons to rein it in for many.

I've never put a whole lot of weight on risk-adjusted return. I've never computed it for myself and none of the financial institutions I have accounts with provide it as a performance metric. I've read a few "portfolio design" books that talk about it though, but just as another way to shed light on the impact of different choices, not as a recipe. I think it's a lot like MPT in that it's interesting academically, but impractical at best for choosing a portfolio for an everyday individual.

Some people seem to think asset allocation is much more of a "thing" than it really is. Everyone practices asset allocation, except spendthrifts and people without any assets at all. Holding all individual value stocks, or a mix of them and cash, is an asset allocation, not different than someone who has some in stock funds, some in bond funds, and maybe some in cash.

Attempts in the 1970s to create portfolios by applying MPT pretty much demonstrated that the optimizing of future risk adjusted return with mixed asset classes isn't possible. Last year's optimal weighting may well be this year's laggard.

When talking about ideas like "risk" and "optimal" in the end it usually comes down to an individual thing. People have different financial ambitions and concerns, maybe most importantly different temperaments, differing aptitudes, and differing desires in how much of their time they want to devote pursuing wealth. For a lot of folks a traditional mix of stocks, bonds, cash, maybe some gold or whatever, managed relatively passively while occasionally adjusting relative proportions commensurate with financial means and life situation, provides a holistic optimization.

I don't think I said anything about index funds or "indexers" after the first sentence. Index funds are primarily just a low-cost option in the realm of mutual funds, which are just alternatives for investors who want to own some stocks or bonds. The only perceived magic about them is the low management fees, relative tax efficiency in some situations, and that they generally perform well in the universe of mutual funds (because of cost).

I've been though a bunch of returns that don't follow a normal distribution. The general tactic of spreading assets over the traditional buckets (stocks, bonds, cash) using mutual funds (some index funds, some not) has not succumbed miserable failure yet. Might happen some day, might not.

I very much like the concept of value investing/picking stocks. I think it's a solid strategy if executed well, and if I was more "into" investing I might employ it myself, although it would be competing with my inclination to be somewhat contrarian, which I am able to do within the confines of my stodgy old pile of mutual funds much more readily.

plantingtheseed
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Re: Psychological challenge of sticking with a volatile portfolio

Post by plantingtheseed »

Good read. I believe you have clarified my sentiments regarding how indexing is equated nowadays with "optimization" (back-testing, monte-carlo etc.) to mean it's somehow safer or better, as this is where I pointed out my reservations.

viewtopic.php?p=218884#p218884

But, I yield to free will. :D

plantingtheseed
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Re: Psychological challenge of sticking with a volatile portfolio

Post by plantingtheseed »

For consideration: SEE 1:04:12 - 1:13:32

https://ocw.mit.edu/courses/mathematics ... anagement/
Last edited by plantingtheseed on Thu Feb 18, 2021 10:09 am, edited 1 time in total.

IlliniDave
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Re: Psychological challenge of sticking with a volatile portfolio

Post by IlliniDave »

plantingtheseed wrote:
Wed Jun 24, 2020 10:00 am
Good read. I believe you have clarified my sentiments regarding how indexing is equated nowadays with "optimization" (back-testing, monte-carlo etc.) to mean it's somehow safer or better, as this is where I pointed out my reservations.

viewtopic.php?p=218884#p218884

But, I yield to free will. :D
Not real sure what you meant there, but if the point is one should not bet the farm on an assumption historic return averages will persist in the future, then I agree. Being a little conservative by nature financially, I assume returns quite a bit below historical (using a rough version of the Gordon Eq. supplemented with a PE-based modifier) and for now while I'm susceptible to SoR risk, hold more short-term bonds and cash than I typically would.

With terms like "safer" and "better", hard to say much definitively without "than what" and "for whom". Even "optimization" needs an "of what versus what". Safer, better, and optimal could all be applied reasonably to many strategies in the right context.

As someone whose been around the indexing world for about a decade now (forced there against my desire by a sweeping employer 401k plan change) I've never encountered the oversell I hear a lot of argument against. Two of the more popular quips on bogleheads (they are a good representation of the universe of investors who employ index funds in some capacity) when it comes to the future are "nobody knows nothin'" and "you pays your money and you takes your chances". That said, there a range of opinions on how valid past results are when making plans for the future. It would probably be interesting if someone with a new account over in their first post boldly asserted the veracity of all the over-the-top claims attributed to indexers that critics of indexing argue against. I'm guessing it would not be met with a unanimous chorus of "Bravo! Bravo! Pass the Kool Aid" :)

plantingtheseed
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Re: Psychological challenge of sticking with a volatile portfolio

Post by plantingtheseed »

Hmm... :lol:

(Had to take care of few things. Was thinking, 'this would be a great way to scuttlebutt on a forum to get information quick!' :D Thanks for a great discussion and clearing up many things for me.)

IlliniDave
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Re: Psychological challenge of sticking with a volatile portfolio

Post by IlliniDave »

plantingtheseed wrote:
Wed Jun 24, 2020 11:16 am
For consideration: SEE 1:04:12 - 1:13:32

https://ocw.mit.edu/courses/mathematics ... anagement/

Forget the school. A more important question is who is speaking and is he worth listening to?
I have no idea who the guy is or how good he is, and only listened to the excerpt you recommended. Intuitively I agreed with him and intuitively I've believed for a long time that a big part of market movements are driven by human behavior especially when you look at short and moderate-term behavior. I never really framed it in my mind the way he did and I've never had any education in finance. In that brief segment I think he makes a point worth considering, but he also alludes to the fact that what is optimal is a problem yet to be solved. Too bad I like fishing so much, there's a lot of stuff out there that would be interesting to learn during the leisure phase of my life.

plantingtheseed
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Re: Psychological challenge of sticking with a volatile portfolio

Post by plantingtheseed »

Now that I think about it, there were extra 10-15 minutes of Q&A which I think you might have also enjoyed, but they were on other topics.

He does say, predicting the future correctly is where the money is at. I agree.
Last edited by plantingtheseed on Thu Feb 18, 2021 10:08 am, edited 1 time in total.

Lucky C
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Re: Psychological challenge of sticking with a volatile portfolio

Post by Lucky C »

You keep emphasizing looking to the future (i.e. a company's future cash flows) and not basing investments on the past (e.g. past high growth that can't continue forever), which is the right thing to do as a legitimate investor. But I am a scoundrel who wishes to exploit the weaknesses of others for profit. To do this I assume that the underlying human psychology works more or less the same way as it has done in the past, as long as market transactions are still being influenced to some degree by flawed human brains.

You can bet on how a bull will react to a matador's cape based on how other bulls have reacted to other matadors' capes in the past. You can bet that a bear will hibernate as winter approaches based on your observations of other bears in past winters. You won't know exactly what path the bull will take or exactly what day the bear will go to sleep, but by looking at past behavior you can make much better bets on what they will do compared to someone who has never observed a bull or a bear before. It would be foolish to invest based on past corporate performance, but trading based on timeless human psychology is a different story.

Both of us would look at a bridge swaying under a herd of pedestrians and see it as a risky place to be, and would not want to be a part of the herd. You might seek a different path away from the herd to avoid that risk while still walking to your destination. But I see a large amount of kinetic energy moving in a predictable pattern that could be harvested to charge my electric vehicle to then reach my destination faster than walking. Your way is a perfectly safe and reasonable way to get where you're going. My way is weird and perhaps too complicated and comes with other risks and it may turn out that I would have been better off walking too, but right now I have the confidence that I can make it work, and I can't resist all that potential energy going to waste.

plantingtheseed
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Re: Psychological challenge of sticking with a volatile portfolio

Post by plantingtheseed »

There is no right or wrong way that's set in stone in investing because most would agree that what matters is the end result, not how you got there. (Presuming that these ways are within the confines of being morally bound, ethical and not against the established rules of law)

Many of the renowned investors seem to advise a common perspective to get to that end result. If they are to be believed, then there is a way that one may be able to follow to set aside the fear of price volatility through rationality.

But these are just opinions, being contributed to a discussion as a consideration for a mutual benefit. No justification needed, and I do want you to win as well, because the next thing, I will be the first one asking for your methods. :lol:

Lucky C
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Re: Psychological challenge of sticking with a volatile portfolio

Post by Lucky C »

Seems like the majority of successful investors, as well as self-help authors in general, give advice in a "just follow these rules" kind of way, along with a lot of promoting of how successful you can be if you stick to the plan. This is what people want in book form, all the good news and optimism in a straightforward format.

What is lacking is investors who talk in depth about the emotions you feel through the market swings and how to overcome them. Again, the authors who do simplify things with a phrase or two like "don't just do something, stand there!" OK but how do you permanently change someone's natural tendency to "do something" to one who is willing to "stand there" when conditions are difficult? A lot of authors touch on this subject but don't go in depth to tie in psychology and turn that into actionable advice to defeat psychological difficulties when investing.

For example Thinking Fast And Slow illuminates a bunch of psychological flaws that could hurt us in the investing world if we behave more like an irrational human vs. a rational "Econ", and each chapter ends with general tips for fighting these flaws, but not applied to the specifics of investing. A book like The Intelligent Investor helps teach you to be a better value investor if you're naturally an Econ, but doesn't touch on why you can't just have anyone read the book and become a successful investor. The vast majority of people are not rational enough! What I don't know is if someone has attempted a science-based training program designed to permanently destroy your natural psychological/biological inadequacies specifically for the benefit of becoming a better investor.

Perhaps I should check out Richard Thaler's books, but as far as I know he is "just" an economist and not a successful investor/trader. I also have Dalio's Principles to read through which seems useful, but while Dalio has some broad knowledge he is not a psychology/biology expert. What I would love is a book co-authored by someone like Kahneman + someone like Druckenmiller. Maybe there are some videos somewhere of dialogues between combos of psychologists and investors like that...

What would also be interesting to read is biographical horror stories from successful investors, detailing the emotions and thoughts they went through in their worst investing days, and how they eventually overcame it and changed their habits based on what they learned. Again Dalio touches on this, but it would be nice to learn from a wide variety of others' terrible experiences rather than having most books consisting of "Just Do It" to be successful.

ertyu
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Re: Psychological challenge of sticking with a volatile portfolio

Post by ertyu »

dalio is a systematic strategy investor. he came up with an organizational structure he believes allows for the best possible systematic strategy to be designed, and then he follows that strategy.

shemp
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Re: Psychological challenge of sticking with a volatile portfolio

Post by shemp »

Lucky C wrote:
Thu Jun 25, 2020 5:25 am
...A book like The Intelligent Investor helps teach you to be a better value investor if you're naturally an Econ, but doesn't touch on why you can't just have anyone read the book and become a successful investor. The vast majority of people are not rational enough!
No. Graham discussed psychology at numerous points in The Intelligent Investor.

Graham specifically recommended 50/50 stocks/bonds as the norm, but possibly slowly shifting as far as 25/75 or 75/25 in cases where stocks seemed over/under valued, precisely so the figgedty investor would be able to do something instead of just sitting still. Plus such gradual shifting more likely to help than cause damage. (Note that Graham might advise other proportions of stocks/bonds nowadays. Zero interest rate policy was not a thing in his day.)

There's also the famous Mr Market metaphor, which Dave already alluded to. That metaphor shows the investor how to use volatility to his advantage versus the investor making bad decisions because of volatility.

I believe Graham also quoted JP Morgan's famous advice to "sell down to the sleeping point", when Morgan was asked what to do by someone who couldn't sleep because he was nervous about his stock investments.

Now if you're saying, I read Graham, I read all the other advice on this thread, and I still piss my pants and go all cash every time prices dip, well I don't know what to say. You're clearly not the "intelligent investor" Graham had in mind, and by intelligent Graham did not mean high IQ or lacking normal emotions. He merely meant enough common sense to understand what he (Graham) was saying plus enough self discipline to act on his advice.

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