Maximising investment portfolio performance

Oggers

Maybe my experience is not typical, but the very first fund I bought was Schroders UK, which after a year was clearly underperforming, so I sold and bought Jupiter European.

The above quote from Banana seems to suggest is is not an imponderable. I have already rebalanced to become more global as you seem to be suggesting.

BananaRepublic

Oggers wrote: »

Banana

How did you know the initial Schroders UK fund was (truly) underperforming and not taking a temporary dip?

I don't have anywhere near the skill, experience (or luck?) as your goodself to be able to confidently say i have bought no dogs. At present, I simply don't know, hence the question. Once I have understood how to truly identify a poorly performing fund, as per yourself, I cannot see much fault with flogging it for something else - although what that something else may be is a different question.

Having digested all these useful posts I think my approach may now be summarized as follows

Rebalance - Far too UK biased initially. Now much improved as regards country and sector spread.
Allow far more time for data to accumulate before deciding what to do - if anything - with existing funds, and even then be cautious.
Understand how to identify a truly underperfoming fund - see above
Don't think about swapping funds/investment amounts on a monthly basis

Back then the internet was not as well developed as today, and it was not so easy to find historical data. I cannot remember how I decided it was no good, probably because it significantly underperformed the index during the year I was invested in it, and perhaps I found historical data. These days it is so easy, just go to a site such as You Invest (other good sites are available) where you will find fund comparison tools. You can then examine performance over the past 10 years, and check that it is consistent i.e. not one outstanding year and 9 mediocre ones. Consistent performance is a sign they know what they are doing.

I don't think I have been lucky, but neither did I need much skill, there are basic ideas behind investing such as diversify, do your research and so on. If you feel uneasy with that, then as suggested above go for a global index tracker, you'll get low fees, and diversified investments. It won't protect you losing money when the world markets crash, but stay invested for some more years, and on past performance your money will recover and do well.

Oggers

Banana

Thanks for that - useful tip ref You Invest etc. I have already set up some sort of fund comparison to its closest index on an Excel spreadsheeet, so someway there....

seacaitch

EdSwippet wrote: »

I'm going to suggest that this will be a route to dissatisfaction. At any given point one of your several holdings will be ahead of the others. This will lead you to repeatedly and constantly rethink whether the others are pulling their weight, or whether you should have instead put everything into the (current) winner. You'll either tinker, or at minimum feel a constant pull to tinker.

As an antidote, consider that what you need is not an optimal outcome, only a satisfactory one. Moving from a maximising to a satisficing mindset will make you happier overall.

This is an important point. Optimizing/maximizing behaviour applied excessively can lead to poor investment outcomes.

Attempts at maximizing will often lead to data mining based on past performance and result in a portfolio vulnerable to mean reversion effects across asset classes and investment strategies.

Notably, maximisers are more susceptible to regret than are satisficers. Regret is a dangerous emotion in Investment, leading people to performance chase, buying high and selling low. Buy high sell low behaviour is the classic error leading to poor results for novice or other unskilled investors.

People may enter the field of Investment after obtaining some success (and thus money) in another field, perhaps a professional field in which they have a strong aptitude and in which their maximizing tendencies have served them well. But applying this same approach to investing rarely proves so successful. This can be a difficult mental hurdle to overcome because there are few other endeavours in life where one's efforts to optimize something can so readily lead, counterintuitively, to worse not better outcomes, and therefore people often don't have previous life experience of this type of situation to draw upon.

The satisficer's approach of devising a portfolio strategy 'good-enough' to do the job asked of it is not a cop-out or '2nd best' choice. Instead, it's acknowledging that investment involves high inherent levels of uncertainty that make accurate predictions difficult at best and impossible at worst. Without accurate forecasts maximizing approaches will struggle or even fail. Instead of a better result and greater happiness maximisers may often therefore suffer worse results and high levels of regret. Not a great outcome! And we often see this manifest in the performance results of private investors, particularly novices, who've focused their efforts on the wrong things.

ChesterDog

Choose your investments wisely - but they do not have to be the 'best' (especially on a rolling basis) - and leave them to do their job.

Good enough is good enough.

http://monevator.com/weekend-reading-the-best-investors-are-dead-right/