Confidence Allocation

Confidence Allocation

* This is the 1st article in a series about the Confidence Allocation *

“All you need in this life is ignorance and confidence, and success is sure.” -Twain

Investing, like many things in life, can be confusing.  Even the best financial professionals have a hard time keeping up with the details.  When you start thinking about how you should be investing your money, it’s easy to become overwhelmed.  With new research and products coming out every day, how can you decide what is right for you?  The answer is a bit cliche, but I’ll say it anyway.  The best investment strategy for you, is one that you can stick with.

Getting Uncomfortable

Have you ever started a new exercise routine or diet, only to give it up after a few weeks?  Why did you give up? What if I told you that by only eating green foods for the rest of your life, you’ll be in great shape and live well past your 100th birthday?  Do you think you could stay committed to “Tim’s Green Only Diet”?  Probably not.  Why, though?

In itself, eating only green food would be pretty darn tough.  In addition to the physical discipline required, you’d also have some mental hurdles to overcome.  I didn’t provide you any scientific evidence that the diet would work and on top of that, you don’t even know if I’m qualified to give nutritional advice.  Do you think you’d be comfortable talking about your new diet with friends?  I’m going to guess that unless you saw immediate, life-changing results, that diet wouldn’t last long.  You can’t stick with something you don’t have much confidence in.  Investing is no different.

Most people, can’t be expected to understand the intricacies of the thousands of investment strategies and products available today.  The good news is, to be successful, you don’t really have to.  You can be very successful by having high conviction in a few simple concepts.

For an investment portfolio to do its job, its owner has to have confidence in it.  Markets are complex and dynamic, so although it is impossible to have 100% confidence in any idea, some concepts come with much higher confidence intervals than others.  Below are ten basic ideas that I have extremely high confidence in.  In the coming weeks, I’ll explore how this list drives my decisions on portfolio design and why I believe having conviction in a foundational set of beliefs is critical to long-term investment success.

I Believe

  1. Humankind is progressing.
  2. Diversification is a good idea.
  3. People can behave irrationally.
  4. The global economy strengthens as it evolves.
  5. Financial markets do a good job at rewarding investors for providing capital and taking risk.
  6. Factor attribution that existed in the past, may not exist in the future.
  7. There are limits to arbitrage.
  8. Outperforming the collective pricing power of the market is difficult.
  9. Picking good fund managers is very difficult.
  10. Picking good stocks is extremely difficult.

 

Further Reading…

The Little Red Corvette of Investing

The Power of Doing Nothing

At Ariadne, I work closely with families and individuals to organize their finances and utilize their resources to design a life they love.  If you are interested in a straightforward, no-gimmick approach to financial planning that focuses on you and your needs, don’t hesitate to get in touch.  I’d be happy to have a conversation


Tim Brennan

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