Written by: George Shirley. Any opinions are those of George Shirley and not necessarily those of RJFS or Raymond James
You often hear that in sports, winning can mask serious issues within a team. If your team wins, it is easy to look past some of the problems that could have impacted the result, especially if you got the result you wanted.
Quarterly earnings numbers for public companies are similar in that there is an emphasis on the top and bottom line numbers, i.e.the results, and not always on how those results were derived. “Company exceeds record revenue projections” is a common headline, but probing deeper into the actual results is where you can learn whether those results were because the core business is thriving, or whether there were extraordinary items that contributed to the results. Often, after a company has declined in value, many pundits will come out and point to all the problems that were largely unnoticed or ignored while the company was “exceeding” expectations.
I find that when markets go higher and portfolio values increase, there can be less concern about the allocation and efficiency of the investments. Markets like these that continue on an upward trajectory can provide a false level of security and assuming that things will continue on as they currently are (recency bias) can impact decision making. Investors can be lulled into staying the course when the tides are changing, or can be unwilling to take action when opportunity presents itself.
I have evaluated a number of portfolios recently that were heavily concentrated in certain parts of the market and not nearly as diversified as they should be, but the portfolio has gone up in value. Their team is winning. I caution investors to take action to address some of the inefficiencies in the portfolio, when the team is winning, and not after the fact, looking backward.
Diversification and asset allocation do not ensure a profit or guarantee against loss. The link provided is for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor the listed website or its respective sponsor. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.
Listen to our podcast: