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Everything In Its Right Place

FIFA World Cup 2022 is well underway. And just like investing, there will be moments of surprise and disappointment.

There will also be moments of spectacular celebration. When it comes to your own portfolio, experiencing a string of great investment returns — like we have over the last few weeks — can feel unnerving.

Should we celebrate? Should we sell, and lock in some gains?

Should we do anything?

At least one World Cup team has the answer...

* * * * * * * *

Just four months ago, stocks staged a forceful 10% rally off their lows.

In Is It Time To Sell Stocks?, I encouraged readers to take guidance not from gut feelings, nor the financial media, but from Naomi Hasegawa, the operator of a tiny mochi store outside Kyoto, Japan.

For over 1,000 years, her family's store has done only one thing: serve customers great mochi. They've avoided modernizing toward a digital experience, chasing potential new revenue streams, signing up for Uber Eats, order to remain undistracted from this one pursuit.

Turns out, doing one thing — and doing it really, really well — culturally, is very Japanese.

And so it wasn't lost on me when I saw a recent picture of Japan's locker room after beating Germany at the World Cup:

Spotless. Why are these celebrity soccer players so gosh darn considerate? Why not spray champagne and let stadium workers pick up after you?

Because they are people, and specifically the types of people who pick up after themselves, before they are global soccer phenoms — gratitude and consideration for others, rather than celebrity gloat or entitlement.

And when I shared Naomi's story previously, it was to encourage readers to not lose sight of the goal of their own portfolio, amidst that rise in stock prices. It's tempting to start putzing about with your investments, taking some chips off the table, and deviating from what the portfolio is intended to do.

The portfolio's role is not to momentarily help you feel good about yourself.

Rather, it's to fund some current and future vision of a gratifying existence — maybe for you and your own family, and maybe to help other people and causes, too. These are the high stakes we face as stewards of capital, and as such, we must be intentional when designing and implementing our investment approach.

It doesn't have to be complex, but it has to be rigorously thoughtful, and bespoke to your current life and preferred vision of this future existence.

Big deviations from the well-designed strategy aren't simply errors; they are poor service to any person or cause that is a beneficiary of our portfolio, now or in the future (and regardless of whether they even know they're a future beneficiary).

We, and those who may rely on or eventually benefit from our assets, deserve more than us ineffectually winging it.

And once again, in just the past few weeks, we have experienced another strong rally, as we sit 14%+ off the October lows.

And once again, if nothing has changed for you personally, and all else is equal, nothing should change about your implementation strategy. You shouldn't sell stocks just because it feels nice to lock in some recent gains.

But just because you should never sell stocks based on whims and hunches, doesn't mean you should never sell stocks.

If you've done the rigorously thoughtful work, or worked with a financial planner to help you do the work, you should have well-informed portfolio targets for the various assets you own.

Here's a very basic example. Let's assume you are targeting these asset classes and weights:

  • 60% Stocks

  • 30% Bonds

  • 10% Real Estate

Here are all three assets over that same recent time horizon:

And because of these returns, and that stocks and real estate have done so much better than bonds, it's possible that your well-defined targets are currently off. You want everything in its right place, and may need to consider some adjustments back.

Remember — we don't want to waste energy celebrating good returns or being flustered by bad returns. We can't control returns. We just want to focus on ensuring we keep our portfolio close to the risk-appropriate weights for each asset, thus consistently accepting the right amount of risk to pursue the commensurate return.

So depending on the target weights in your own portfolio, you might now be considering selling stocks and real estate, and buying bonds with those proceeds. This is how investors buy low, sell high (the gold standard of implementation) while remaining disciplined.

It's not tactical shifting or trying to time the market — it's just rebalancing.

This is the same lesson from Naomi's mochi shop, and also from the Japanese soccer team.

Identify very clearly what you're trying to be, and avoid temptations to be anything else. Don't get distracted.

The market doesn't care about us, and is unfailingly agnostic to our desires and preferences. It doesn't know if we've had a string of good or bad performance recently, nor how we feel about the economy, inflation, or mid-term elections.

And so while you might feel something about the market, that feeling is not reciprocated.

In the market's eyes, you are irrelevant and don't exist.

But you do exist, and overwhelmingly so, in the eyes of those who rely on your portfolio to fund current and future happiness.

Whomever/whatever the recipients of this happiness are, your money is a tool and it should be handled with the right type of care. And you want to engineer a system that has principled beliefs, and where you can behave consistently within them, regardless of the hurdles and unexpected outcomes you will inevitably face.

Whether it's investing or life, you want the right actions to become habits, and the right habits to become culture.

Investment culture is not something that you likely think about, but you have one. You may have a culture of indifference, where you don't pay attention to the harmony, weights, and rebalancing amongst your investments.

You may have a culture of activity, where you start searching for great trades when market volatility picks up.

But I'd encourage you to have a culture of unwavering discipline. The Japanese soccer team knowing exactly who they are, what they stand for, and celebrating with humility by cleaning up after themselves, was not simply a short-term action. It's more than that.

Nor was it only a habit. It's more than that, too.

It's culture. Ask Naomi and her family. Or ask the Japanese soccer fans, who while the players were cleaning the locker room, were helping clean the stadium!

And culturally, they are not just themselves when they win.

This was the picture circulating four years ago, at the last World Cup, in Russia:

Translation from Russian: Thank You

The Japanese locker room after they lost to Belgium, were kicked out of the World Cup and sent home. Win or lose, we see the same thoughtful people.

Your portfolio will face similar highs and lows, disappointments and celebratory moments. In fact, we've had all of these, multiple times, just this year.

Be as indifferent to the market as it is to you. Celebrate your big life moments with unbridled spontaneity, but not your portfolio movements. Consistent investor behavior beats spraying champagne.

Actions into habits, and habits into culture.

Everything in its right place.



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My blog posts are informational only and should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in my posts will come to pass. They are not intended to supply tax or legal advice and there is no solicitation to buy or sell securities or engage in a particular investment strategy.

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