224 | Pick Your Poison

There are really only two ways to invest - hold them all or pick a few good ones.

A lot of research here shows it's pretty hard to distinguish which approach is better.

Holding them all guarantees you don't miss the best ones, but it means you'll hold the worst ones too.

This way is almost always a smoother ride.

It's also less "expensive", which is a special way to say no one's analyzing much of anything.

Picking a few good ones can be extraordinary...as long as you pick the right ones.

If the few you pick are wrong, you'll be sad. And whether you pick well or not, it will be a wild ride.

This way is more "expensive" - sometimes in dollars, always in minutes - but intellectual or moral "consideration" is valuable to many folks.

Both approaches can, and do, work. Both have seasons of disappointment too.

Instead of arguing about the approach, it's best to pick the one that resonates most and then move on.

If it seems I’ve oversimplified it, here's the fancy version...

"The data on wealth creation suggest two strategies for portfolio construction. One is to recognize that an investor can capture the skewness, or asymmetry of a distribution, in long-term total shareholder returns by holding a diversified portfolio. Index funds are an effective way to implement this approach. While an index will include stocks with poor returns, it will also have the handful of companies that generate most of the aggregate value. The other strategy is to build a relatively concentrated portfolio that seeks to include the companies that have the potential to generate high returns and avoid those that do not."