A Simple Way to Vastly Improve Your Investment Performance:
While we do not use this letter with our clients…sometimes it would be helpful. Investing is simple but never easy!
If you really want a simple way to succeed as an investor, print the following letter out and sign it. Also have whomever you work with on your investments sign it and keep it on file. Indeed, if you can, think of it like a legal document that you are legally bound to follow. Here’s the text of the letter:
Dear (Person who helps you with your investments):
I realize that successful investing is an almost impossible task. Every part of the overall allocation of my portfolio looks perfect now, but will invariably look horrible at some point in the future. Given that I am no different than any other human being, when one of the asset classes or investment style goes out of favor and begins performing very poorly compared to my other investments, I will call you—or if I am really emotional—come see you in person and absolutely demand that you sell out of the investment.
By signing this agreement, I am giving you the right to say no and, if it appears particularly cheap and appealing to you, actually sell some of my other investments that have done particularly well and add money to the investment that I so desperately want you to sell, as long as it is in line with our re-balancing plan.
I’m agreeing to this because you have really sold me on the idea of re-balancing a portfolio back to target allocation when things get really out of whack with what we agreed to when we started working together.
I further acknowledge that I might also come in elated by how a particular fund or asset class has performed and beg you to either buy more of it or at least not sell any back to the target allocation. You have the same authority granted above to tell me (but please be gentle about it) that you refuse to do so and in fact, will re-balance to my target allocations.
I know that when this happens, I will pretend like I don’t remember this letter or that you tricked me into signing it but then you will remind me of hindsight bias. I will tell you that it’s different this time and we need to act immediately to avoid total financial ruin. Again, remind me that our agreed upon allocation really is right for me and for the long-term and that the world really isn’t going to end. (If it does, this portfolio will be the least of my problems!)
Also remind me that I almost totally ruined my future during the financial crisis when I threw in the towel and sold all of my stocks in February 2009 or March 2020, right near the market bottom.
Thank you for helping me get back on track!
Sincerely yours,
Your Name
Hope you have a great week!
If you know of anyone that you think would appreciate this email, please don’t hesitate to forward it on.
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