If there is one thing I came to grips with a long time ago, it was the reality that I was losing hair. For a while I thought I was just gaining face. But no. “Dang it! I’m going bald!” And, unlike many other things in my life, this time I decided to address the foreseeable future. Comb-over? Hmm, no. Rogaine? Nope. Transplants? Ouch. Toupé? Not for me.
The way I took ownership was by determining to accept the fact that I am follicly-challenged. I literally had several conversations with myself (and God) aligning my emotions with my circumstances.
It did not come easy at first. But over time I gradually allowed myself to be me (although I still enjoy wearing hats on occasion).
The point? I don’t need to cover up reality. Brushing over (pun intended) the unfortunate conditions does us little good. It won’t last. It’s not sustainable.
Yet, that is often what happens with many of us who manage our own investments. When our portfolios lose their luster, it becomes easy to find ways to cover up the mess.
Why is that? Well, it is human nature to put “our best face on” just about everything that reflects on our status and place in the world.
Cosmetic Investing
Cosmetic investing occurs when we cannot stand to look at our portfolios (and shutter at the thought of anyone else seeing the mess we’ve made). The stocks or funds we hold aren’t as charming as they once were.
And because we hate our losses twice as much as we love our gains, we start tinkering. We sell the “dogs” and think we’ve made progress. This is just one version of a cosmetic cover-up.
Yet, we hold onto the positions that we’re emotionally attached to. Those “affinity” stocks that once were the darling. The ones that continue to cling onto unrealized gains. In other words, we try all the cosmetic tricks we can think of, all the while denying the real solution.
You Can Dress Them Up, But…
Another more common cosmetic cover-up is to add market “mascara”—the well known hyper-glossy stocks (e.g., MSFT 0.00%↑ , NVDA 0.00%↑ , etc) to a portfolio already covered with pimples! They might be good additions, but they don’t solve the acne problem.
We all do it. Instead of adjusting based on a well-aligned strategy or even scrapping the portfolio that is failing to do its job, we add to it. Layers and layers of cosmetics. And we end up with a portfolio that looks nothing the original healthy, vibrant version of itself.
We’re caking on these “concealers” to a portfolio that is already in need of a facelift! And we do this with little thought of how these new additives impact the overall weight and strategic make-up of the portfolio.
What’s more, this often happens with portfolios that have a large portion in cash! Investors love their cash (although I am not sure why, as excess cash is one of the biggest drainers on long-term returns). Yet, how often do we hear of somebody boasting about buying some hot stock, which usually amounted to a small percentage of the portfolio, while sitting on mounds of cash doing nothing?
OK, enough ranting. (Sorry, but I’ve seen thousands of high net worth client portfolios to know what is really happening. And, I’ve done it myself. Until I stopped doing it.)
So, what should be done?
Reality Exposure
We investors don’t do justice to the reality of our portfolios. Your portfolio deserves better attention and self-care from you.
Start by purposefully exposing the reality of your portfolio. Here are some signs that your portfolio needs a reality check. For example, if you notice:
a large percentage (>30%) of the portfolio in one or two stocks, that is a sign something could be wrong. These stocks might have done great at one point, but markets don’t care.
that you have too many stocks relative to the value of your portfolio, something is misaligned. You may be over-diversified. (E.g., a $100k portfolio does not need 25 individual holdings! Likely, 3-5 ETFs will do.)
that you don’t know anything about the holdings in your portfolio, that is a definite sign you probably need a portfolio facelift.
that you have an emotional attachment (affinity) to certain stocks; stop and re-assess why you own them.
that you cannot explain the strategic makeup of your portfolio (how the holdings fit and work together), then its time for re-think.
The intent of this exercise is to call the portfolio what it is. Not hedging or hiding. Expose it and name it.
A Portfolio Facial
I have recently become a fan of facials. But, ouch, they can hurt at times. Luckily the long-term benefit far outweighs the temporary discomfort. This is no different from taking a close inspection of your portfolio.
In most cases the required changes to your portfolio need NOT be surgical. However, it starts by making a close and honest examination of your portfolio. Not in light of the market movement of the day, but the performance of your holdings over 3, 6 12 and 24 months (and longer)—relative to a benchmark (e.g., S&P 500).
Once you’ve decided that your portfolio no longer needs “glossing up” with cosmetic correctors, it’s time for the real work to begin.
Seriously facing your future reality and begin to build it on your terms. I recommend the following steps:
Run a portfolio x-ray using an online tool or even (gulp) an AI Chatbot: Morningstar Instant X-Ray for examining funds or ETFs, and a tool like Koyfin for a deeper dive into your portfolio.
Reorient the way you think about your portfolio: Flattened: How Opportunities Appear at the Intersection of Perspective.
Re-define your rules of portfolio engagement: “That Is Not My Business!”: How Self-Investors Lose More to Distraction Than to Mistakes.
Re-shape your long-term plan: Trading vs. Investing: Why Patience Wins and Panic Loses.
If your portfolio is well structured, then be patient. Resist the urge to act. Discover whether your portfolio is showing real blemishes that need attention or just a few beauty marks that need time.
My hope is that this exercise helps you return to portfolio reality and own it! Over time, it will definitely pay off. Covering it up only makes things worse.
This publication is for brains, not bets. The Other Side of Obvious shares ideas, stories, and general financial information—not personalized investment, tax, or legal advice. Investing comes with risk (including losing money). Talk to a pro before you act. Please take time to read these important disclosures before you get started.