Investments I Don’t Have

In my previous post about my asset allocation, I showed a picture of what I have. Here it is again:

This time I’m writing about what I don’t have.

1. No individual stocks, except employee stock options. I believe picking stocks is a waste of time. I had tried picking stocks in the past. I spent a lot of time reading 10-Q/10-K reports, studying Wall Street sell-side analysts’ research notes, listening to earnings conference calls, and refreshing every 5 minutes for breaking news on briefing.com. I thought I followed the stocks well but my results were still very poor. I don’t play that game any more.

Like many other people, I have employee stock options. The values are significant especially when the leverage is taken into account. That’s plenty of undiversified risk already. I don’t need more individual security risk.

2. No sector funds, except REITs. I don’t invest in funds specializing in a narrow sector. No energy, no water, no mining, no health care, no biotech, no web 2.0 technology. REITs is the only exception. Some say it’s not a sector fund. Because most of the commercial real estate is privately held, I think investing a little more in the publicly traded REITs is OK.

3. No single country funds. I don’t invest in funds targeting a single country or region. No Brazil, no Russia, no India, no China, no Latin America, no Middle East, no Eastern Europe. I own a diversified emerging markets ETF, but I’m thinking of not adding to it any more and using the all-in-one Vanguard FTSE All World ex-US ETF (VEU).

4. No “alternative” investments. No gold, no timber, no commodity futures, no foreign currency, no long/short, merger arbitrage, or hedge funds, no limited partnerships. Although some of these are considered diversifiers, I’m not fully convinced.

5. No margin, shorting, options, or leveraged or inversed funds like Rydex, ProFunds, or ProShares. If you don’t know what these are, you don’t want to know. I’ve been there, done that. Before I knew better, I traded on margin, shorted stocks, and thought about doing puts and calls. I’m not going back to gambling.

6. No investments coupled with insurance. No whole life, no universal life, no variable universal life, no variable annuity, no equity index annuity. Insurance and investing don’t mix.

7. No actively managed funds except when a good passive option isn’t available. My only actively managed funds are small holdings in Vanguard International Explorer Fund (VINEX) and Bridgeway Ultra-Small Company Market Fund (BRSIX). Everything else are in index funds or index ETFs.

With the long list of no’s, I’ve made my investments boring, which I don’t mind, although I won’t have talking pieces about my such and such stock doubling or tripling in a few months or how I was right about investing in X (fill in the blank for whatever is hot). I don’t have any “fun money” account. If investing becomes exciting, there’s probably something wrong. Am I giving up potential gains? Yes. No doubt about it. If I put a large chunk of money into NutriSystem (NTRI) five years ago, I would have grown my investment 80x. But that’s speculating, not investing.

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