Confessions of an Aging Active Investor: Why Outperforming the Market Is So Hard!
As an active investor, I’ve found that trying to beat the market demands much more time and energy than passive investing. This year has been especially challenging. To mitigate risk at the start of the year, I adjusted my portfolio from a 20% bond and 80% stock mix to 40% bonds and 60% stocks. Despite this precaution, the NASDAQ dropped 15% and the S&P 500 fell 10% by the end of February.
Seeing some recovery in the market recently, I decided to decrease my stock holdings even further, now having 52% in bonds. Currently, 60% of my investments are in what I call “Macro Bets/Defensive Bets,” with the Gold Miners ETF standing out as the top performer, up 49% for the year.
Managing my investments has become more taxing as I’ve aged. I’ve been doing this for over two decades, and the thrill of the opening market bell has lessened. If you’re not someone who’s constantly excited about tracking market changes and making frequent trades, active investing might not be for you. It’s also why I stepped away from professional money management; the stress of potentially losing other people’s money was too much.
Over time, I’ve wondered how much longer I can continue to outperform without dedicating even more time to the markets. Part of me considers switching to a passive strategy by investing in something like the SPY ETF and securing the gains I’ve made so far. Yet, I’m also anticipating another market downturn this year, which keeps me from moving to an entirely passive approach.
I’ve also taken advantage of sectors influenced by low oil prices, such as automotives and airlines, which have shown impressive earnings lately. However, I’ve had to cut losses on some underperforming investments like Fiat/Chrysler. At the same time, I’m increasing my stake in energy stocks, believing there’s potential for gains there.
Tech giants like Facebook, Baidu, Netflix, and Amazon also make up a significant part of my portfolio for growth potential, even after significant market corrections.
In terms of managing risks and potential corrections, I maintain a 3% cash reserve in my portfolio, similar to practices seen in larger actively managed funds. This reserve is meant to grow through dividend payments and provide some buffer during market downturns, which I predict will happen between June and October this year.
Investing, much like dieting, gets harder as we age. It’s easier to invest passively, especially in a volatile market where active management can be as demanding as limiting one’s diet and maintaining a rigorous exercise regimen.
For those passionate about investing, managing your own portfolio can be fulfilling. However, as the landscape changes and personal circumstances evolve, the appeal of active investing might wane, making wealth management services increasingly attractive. These services handle the tedious parts of investing, allowing you to focus on other life interests.
