Investor Behavior
Greatmark Investment Partners serves a vital role in helping clients manage the
emotions of investing. Markets are, in large part, driven in the short-run by the emotions
of fear and greed. This can lead to "over trading" of a portfolio trying to capture
short-term swings. We believe trigger happy investors are more prone to shoot
themselves in the foot than they can accurately time the emotional whims of the market.
Consider that in a 10-year period from 1985-1995, the average stock mutual fund
posted a yearly return of 12.3% yet the average investor in a stock mutual fund earned
only 6.3%. Investors realized about 1/2 the actual return due to their tendency to trade in
and out of mutual funds at the worst possible time as they chased performance.
Investor behavior also leads to over-diversification. The average mutual fund has 86%
annual turnover, 132 holdings and no position larger than 5% of the portfolio. Nearly
100% turnover doesn't indicate to us a patient, long-term approach. Owning 132 stocks
doesn't indicate patience and discipline in trying to buy stocks on sale. And limiting the
portfolio to no more than 5% in any stock is a bit like a high school football coach
playing all 100 players every game so that he can keep his best player on the bench
during most of the game.
Greatmark runs a concentrated portfolio investing our client's money into a concise
portfolio of businesses we can know and understand. We try to buy great businesses
during the rare times they go on sale rather than being frequent traders of stocks.
There are many ways to make money investing, we happen to prefer the patient,
long-term approach.
emotions of investing. Markets are, in large part, driven in the short-run by the emotions
of fear and greed. This can lead to "over trading" of a portfolio trying to capture
short-term swings. We believe trigger happy investors are more prone to shoot
themselves in the foot than they can accurately time the emotional whims of the market.
Consider that in a 10-year period from 1985-1995, the average stock mutual fund
posted a yearly return of 12.3% yet the average investor in a stock mutual fund earned
only 6.3%. Investors realized about 1/2 the actual return due to their tendency to trade in
and out of mutual funds at the worst possible time as they chased performance.
Investor behavior also leads to over-diversification. The average mutual fund has 86%
annual turnover, 132 holdings and no position larger than 5% of the portfolio. Nearly
100% turnover doesn't indicate to us a patient, long-term approach. Owning 132 stocks
doesn't indicate patience and discipline in trying to buy stocks on sale. And limiting the
portfolio to no more than 5% in any stock is a bit like a high school football coach
playing all 100 players every game so that he can keep his best player on the bench
during most of the game.
Greatmark runs a concentrated portfolio investing our client's money into a concise
portfolio of businesses we can know and understand. We try to buy great businesses
during the rare times they go on sale rather than being frequent traders of stocks.
There are many ways to make money investing, we happen to prefer the patient,
long-term approach.
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