Confessions of an Analyst: My Five Investing Mistakes

With
that
in
mind,
here
are
five
common
investing
sins
I’m
guilty
of
committing:

I’m
(Probably)
Too
Heavily
Invested
in
Equities

My
investment
portfolio
consists
of
both
my
retirement
savings
and
a
separate
taxable
account
that
is
focused
solely
on
individual
stocks.

Putting
these
together,
my
invested
capital
skews
82%
equity
and
18%
fixed
income,
far
from
a
common
60/40
portfolio
or
from
rules
of
thumb
such
as
allocating
100
minus
your
age
to
equities
(although,
as
much
as
it
pains
me
to
admit,
the
balance
is
closer
to
the
modernised
120
minus
your
age).

Given
that
my
retirement
savings
balance
alone
is
already
skewed
70%
to
stocks,
doubling
down
in
my
taxable
account
by
focusing
only
on
individual
stocks
is
arguably
adding
too
much
risk,
especially
at
a
time
when bonds
are
looking
increasingly
attractive.

My
Stock
Portfolio
Has
Home
Bias

Roughly
70%
of
the
equity
portion
of
my
combined
trading
account
and
retirement
portfolios
is
in
North
American
equities.
This
home
bias
is
even
more
pronounced
in
my
direct-equity
taxable
account,
where
15
of
the
16
stocks
I
own
are
traded
primarily
on
US
exchanges.

Meanwhile,
25%
of
my
total
portfolio
is
invested
in
other
developed
markets
like
the
UK,
Europe,
and
Japan.
(As
an
aside,
despite
leading
Morningstar’s
equity
research
team
in
Australia
for
nearly
five
years,
my
former
Sydney
colleagues
may
be
disappointed
to
learn
I
don’t
directly
own
any
Australia-listed
securities
in
my
self-guided
trading
account.
Sorry,
mates!)

This
leaves
just
5%
invested
in
emerging
market
equities,
trailing
the
global
market-cap
weighting
of
8%.
While
some
of
the
companies
in
my
portfolio
are
undoubtedly
tied
to
the
fortunes
of
geographies
like
Asia
or
Latin
America,
it
may
be
worth
considering
some
direct
investment
in
developing-markets
stocks.

My
Trading
Account
is
Too
Concentrated

My
equity
portfolio
consists
of
just
16
individual
stocks,
below
the
typical
risk-reducing
guideline,
which
recommends
holding
at
least
20
single
names.
This
effect
is
less
relevant
when
considering
all
my
investments,
including
the
funds
in
my
retirement
account,
but
arguably
an
increase
in
diversification
may
be
appropriate.

Of
course,
too
much
diversification
could
drive
my
portfolio’s
returns
to
be
much
closer
to
an
underlying
index,
muting
the
effect
of
my
convictions.
I
want
each
stock
to
have
a
meaningful
contribution
to
the
portfolio’s
performance
when
I
think
there’s
a
sizeable
margin
of
safety
in
a
name
that
could
generate
solid
risk-adjusted
returns.
Admittedly,
16
stocks
may
still
be
too
few,
as
my
colleagues
wrote
in
2017,
but
the
sweet
spot
doesn’t
appear
to
be
many
more,
just
20–30
stocks.

I’m
Overweight
Large-Cap
Stocks

The
Morningstar
US
Market
Index
is
weighted
73%
to
large-cap
stocks,
which
is
to
be
expected
given
market-cap-weighted
construction
rules.
But
my
individual
trading
portfolio
goes
even
further,
with
83%
weighted
to
the
largest
companies.

This
overweighting
could
again
be
seen
as
an
undue
increase
of
risk.
However,
it’s
also
a
product
of
my
personal
investing
style.
I
generally
tend
to
invest
in
companies
with
durable
competitive
advantages,
an

“Economic
Moat”
in
Morningstar
parlance.
and
each
stock
in
my
taxable
account
has
been
assigned
a
narrow
or
wide
Morningstar
Economic
Moat
Rating
(or
had
been
assigned
this
rating,
if
no
longer
covered).
There
is
also
a
strong
propensity
for
larger-cap
companies
in
the
US
to
have
a
narrow-
or
wide-moat
rating.

Now,
this
doesn’t
mean
that
being
large
directly
leads
to
durable
competitive
advantages.
If
anything,
the
causation
may
flow
in
the
opposite
direction:
large-cap
stocks
may
have
built
their
heft
by
holding
competitors
at
bay
over
long
periods.
But
nonetheless,
building
a
portfolio
of
individual
US
stocks
focused
on
moats,
particularly
wide
ones,
often
means
concentrating
on
large-cap
names.

I
Rarely
Sell
Shares

Staying
invested
is
important.
My
recent
research
shows
trying
to
time
the
market
is
generally
not
a
profitable
endeavour
versus
a
steady
buy-and-hold
strategy
over
the
very
long
term.
But
sometimes,
stocks
get
expensive,
and
it
may
be
worth
selling
to
make
room
for
other,
more-attractive
ideas.

While
I
generally
aim
to
hold
securities
for
very
long
periods –
I’ve
owned
Berkshire
Hathaway
[BRK.B] since
2009,
for
instance –
I’ve
been
guilty
of
overstaying
my
welcome
as
a
shareholder.
My
most
recent
mistake
is
Merck
&
Co.
[MRK].
The
stock’s
price
now
sits
close
to
its
estimated
fair
value,
but
in
hindsight,
I
could
have
avoided
quite
a
bit
of
recent
pain
if
I
had
sold
when
the
name
screened
as
more
than
nearly
20%
overvalued
in
early
2023.

Luck
and
Judgment

Despite
these
many
faults,
my
investments
have
generally
performed
in
line
with
my
expectations
and
risk
tolerance.
I
feel
lucky
to
have
been
able
to
take
advantage
of
opportunities
presented
to
me
and
don’t
take
anything
for
granted.

But
in
the
spirit
of
continuous
improvement,
it’s
helpful
to
see
my
list
of
broken
rules.
Some
are
acceptable,
but
others
are
products
of
inertia,
knowledge
gaps,
or
simply
a
lack
of
time.
Regardless,
the
above
list
has
me
already
thinking
about
2024
New
Year’s
resolutions,
with
the
hope
of
building
even
greater
success.
I
hope
you’ll
find
it
useful,
too.

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