expanding on yesterday’s post

Yesterday I wrote that I’d stopped looking at my portfolio for a while early in the year. That’s not exactly right. What I should have said is that I stopped tinkering with my portfolio, making minor adjustments aimed at improving the chance for a market-beating return.

So I was looking every day at how my stocks were performing. But I’d reached the point where I thought I had done all the productive stuff I was going to and that any further changes would be one of two things. They’d either be busywork, change for the sake of change, or I’d do something stupid. Said a different way, I’d take what the market would give me because the portfolio I had was the best I could do.

In the same vein, one of my first bosses, who taught me a lot about how to be a competent portfolio manager, had a favorite saying: “Don’t chase.” That is to day, don’t buy a stock that has already gone up a lot. Instead, look for a stock with the same characteristics, or in the same industry, that hasn’t moved yet. Or spend your time trying to figure out the next thematic move for the market and orient your portfolio to catch the next big wave of performance rather than jockeying for the last 10% (which may or may not come) of the current wave that may be close to cresting.

As with everything in the stock market, maybe in life in general, as well, there are caveats to this advice. I have a friend whose basic strategy is to chase. She trades a lot, as a result, giving her taxable clients a hefty IRS bill and herself an arguably unnecessary ton of work, but she’s exceptionally good at it.

Sometimes, too, the wave doesn’t crest for years and what you think is a short-term trading rally is instead a fundamental shift in the market direction. In this case, however, there’s probably some very basic economic factor you’ve missed.

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