In the 1973 film Ash Wednesday, Elizabeth Taylor plays a 50-ish housewife who goes to Switzerland for a face-lift in order to save her marriage. Draped in furs and marital sorrows, she secretly hoofs it to a ritzy clinic in Gstaad for the surgery and follows up with an affair with a sporty German. Alas, despite her efforts to regain her youthful beauty, she never does reconcile with her frosty husband, played by Henry Fonda, who’s prefers his young mistress.
The film is terribly coy about plastic surgery, especially by today’s standards. A trend called “richface“ is especially popular with millennials. It involves extreme dermatological procedures meant to advertise affluence, if not common sense, or even beauty. Selfies of women (and some men) with swollen lips and plastic-looking, puffy cheeks are regularly posted on social media to attract “likes”.
Hyper-grooming is a risky business. It’s subject to the law of diminishing returns— both for our looks and also our investment portfolios. Insecure millennials and reality-show personalities aren’t the only ones who would benefit by leaving well-enough alone.
Investors, too, are a restive lot prone to over-grooming, or in this case, excessive tinkering and trading to shape the “perfect” portfolio. This is costly, both in the short-term, (frictional costs of trading and taxes), as well as in the longer-term through incorrect market timing and weakening of compounding benefits.
In his book The Single Best Investment, Lowell Miller makes the distinction between investors and traders. He states that long-term investing is about character, depth of vision and the cultivation of patience. By contrast most “investors” are whipsawed by the yakking of economists, stock-pickers and other pontificators who populate the airwaves. According to Miller all this chatter provokes the “Three Sirens”: greed, fear, and conformity.
The Sirens spur us to obsessively tweak our portfolios, jumping from one investment to another. Market liquidity, especially for mid-and-large cap stocks and index-ETFs, makes trading exceptionally easy. Maybe too easy?
As a 6th-degree black belt in Aikido, it should come as no surprise that Miller abides by a Spartan code in investing:
- Hold your ground.
- Become neither overly excited when your portfolio is up, nor excessively gloomy when it’s down.
- Feel your feelings, but don’t feel you need to act on them!
Miller is a strong proponent of investing in high dividend-paying companies, with good cash flow, and growing dividends. You’re unlikely to make a killing on them but you’re also unlikely to get killed by them. Over time, as the power of compounding of quality companies takes effect, these investments show their superiority.
Time is the friend of the quality dividend portfolio but, alas, not of the human who owns it. Warren Buffett is fond of saying that his holding period is “forever”, but he tweaks like everyone else depending on market cycles, opportunities, and individual company characteristics.
What’s the sweet spot? Aim to tweak somewhere between Buffett and any one of the Kardashians.