As any accomplished trader will tell you, investors should think of their equity positions as their children. They should act like parents who love all their children equally, nurturing each and every one with care. My trading journal seems to suggest that I’ve been a bad parent at times.
The truth is that my investment management style is often more akin to a screenwriter for the Downton Abbey television series. Each character (i.e. equity) has its own storyline which must be regularly nurtured and developed, but the reality of the situation is that there are certain leading characters (i.e. equities) that simply require – indeed demand – more care and feeding based on their importance to the series (i.e. portfolio) as a whole. All our portfolios are no doubt populated with these high-maintenance characters for a whole host of unique personal as well as market reasons.
My point is not to feel guilty. Instead, I’d say “Welcome to the club!” The lesson here is that it’s human nature to have favorites and embrace lead characters. As an investor, however, you have to remember not to neglect the other actors but to spread the love around consistently.
You have a responsibility for every equity position in your portfolio. It was you, after all, who gave birth to them by adding them to the portfolio and having them become part of your family. Remember that neglect is not an option; indeed, it’s financially reckless and inherently dangerous. Favoritism, on the other hand, is just being human.
To quote the author Simon Sinek, “Like a good parent can’t also be his child’s best friend, a leader with authority requires some separation from subordinates.” Similarly, investors also need some objective separation from their equities. Never lose sight of the reality that your equities are your subordinates.
Trade well; trade with discipline!
-- Gatis Roze