As the curtain closes to what has been an eventful year, the time has come for many for their end of year portfolio review. Reviews and reflections are handy – in these turbulent times, it is imperative that we remain steadfast in our convictions and beliefs. We also need to learn; for in investments, it is the fastest learner that wins.
Here are some questions that you can consider for your reflection/review:
- What was your investment return for this year?
- How have you organized your portfolio and why is it in this order?
- What is your best stock in your portfolio? Why?
- Which stock would you like to remove? Why?
- What was the biggest mistake you made this year?
- What were 3 concepts/things you learn that made you a better investor?
- What areas of learning would you like to work on for the coming year?
Amidst all that mental running that you are doing, I think one needs to keep in mind that randomness is a hugely distortive force. With that, comes hindsight bias and we may end up learning the wrong things.
In December, a strong performance helped Carlson Capital's Double Black Diamond fund achieve a double-digit return in 2021. Q4 2021 hedge fund letters, conferences and more Double-Digit Return According to a copy of the latest investor update, which ValueWalk has been able to review, Clint Carlson's Double Black Diamond fund returned 2.9% in December and Read More
For example, suppose you were considering a U.S defense stock that was already trading at premium valuations. The stock rallied after Trump’s election win. Upon reflection, one may come to the conclusion that “I should have bought the stock”. Assuming you were originally agnostic towards the election results, this would be an erroneous conclusion. The next time you see an expensive stock, you may be more inclined to buy it, to the detriment of your returns.
We need to be minded that investment is an outcome-dependent but process-driven activity. When randomness is at play, we cannot judge our process based on the resulting outcome. Just because a stock goes against your view, does not mean that your process was wrong. There is a tendency to be too harsh on ourselves. Having read many reviews, I am surprised that no one has ever said “this stock blew up, but the decision to invest was a right one”.
Maybe they are being too modest, but just some food for thought.