Nurturing your portfolio
With the weather teasingly trying to break, I found myself pouring a Makers Mark and milling around the yard making a mental to-do list. I kind of enjoy this as a garden’s challenges are never quite met. Variables such as soil & plant quality, drainage, hungry critters et al. can play havoc. But most of all, the weather – Mother Nature can be fickle. This got me thinking: isn’t managing one’s investments not unlike cultivating your garden? Aren’t the overall, uncontrollable market forces similar to the weather? Maybe it was the bourbon taking over but I felt a moment of lucidity as the parallels between the two became more clear. Let’s dig deeper.
Expenses
Where do you buy your plants, fertilizer and mulch? Is it a big box store or a niche nursery? Personally, I have done both and enjoy paying $14/flat of Impatiens vs. $22. Ditto for mutual funds – the no load, institutional class shares are usually around 1-2% cheaper than loaded retail shares. For a $500k account, that amounts to $5-10 grand annual savings.
Simplicity
Over time, I have painfully realized my garden pay grade. Uncomplicated is under rated. It minimizes on-going maintenance. Michelle has suggested a back yard water feature. All I envision is a toad & chipmunk morgue. Likewise, we shun diversification and convolute our portfolios with option strategies, annuities, exotic bonds and inexplicable tech stocks.
Patience
Taking the long view helps both in the garden and investing. I have resisted weeding uncooperative plants only to watch them thrive a season later. How many times have you watched an underperforming investment finally catch favor and take off? But being patient is one thing; realistic is another….
Understanding Outcomes
If you really want to get bummed out, watch QVC garden episodes. They display hydrangeas as big as your head and Begonias right out of the Rain Forest. Will this happen in my backyard? LOL. And I’m not planting bib lettuce unless I want to establish a deer and bunny soup kitchen. Similarly, if you’re buying Muni bond funds, do you envision equity returns? Do you expect to consistently out-perform market indices? (Spoiler alert: you won’t).
Reflection of Goals
I have pretty simple landscape objectives: visually interesting, reasonably manicured, and varied colors all of which require sensible maintenance. I have seen incredible yards around the neighborhood…..with crews of 6 working like ants. What is the price you’re willing to pay? Are you satisfied with index funds or do you enjoy babysitting biotech startups?
Prune
Sometimes plants don’t cooperate. You beg, baby, and water but it just doesn’t happen. Better to simply pull the plug and make way. Occasionally, I perform minor surgery and move it elsewhere - saved a few patients doing that. Similarly, I review portfolios with way too many holdings. Most are redundant or underperforming. You’d be surprised how liberating the sell button can be.
Cherry Pick
Don’t be afraid to ask questions and experiment – trial & error is part of the fun. Did you know a perennial geranium[i] has been genetically engineered? Heck, I’m not too proud to bogart a plant or two from family & friends. My nursery is always open to adopting orphans. Likewise, I have occasionally found great investing ideas from clients and peers. Being open minded can yield profits.
Perhaps most rewarding are garden walks with Michelle and her only garden tool: a pointing right index finger. Gardening success mirrors life: do more of what works and less of what doesn’t. I don’t take the defeats personal but I also savor the little wins. Investing and gardening are both humbling. I don’t mistake ideal weather for a green thumb nor do I confuse brains for a bull market.
Fiscal Fitness is a publication of Houlihan Asset Management, LLC for the benefit of its clients and friends. Houlihan Asset Management. Practical Advice. Prudent Investments. Copyright 2017
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