Finding My Balance

SUCCESSFUL INVESTING is about temperament. Keeping an even keel. Knowing your capabilities. Avoiding excesses of ambition or emotion. Having patience and humility. Only a smidge of investment knowledge is needed. But it’s critically important to know what you don’t know.

Unfortunately, I was not born with such a temperament.

From a young age, I had a desire to learn about investing. I can remember Janie Corcoran turning away from me in eighth grade as I expounded on Schering-Plough or some other long-forgotten company I didn’t own stock in or really know much about. I’d been at my father’s side, watching Wall Street Week on television.

What was most attractive about investing was the idea of getting something in return for nothing—nothing except the exercise of my supposedly superior brainpower. Put another way, I liked the idea of getting rich by outsmarting others.

Therein my weak character was revealed: For much of my younger years, I assumed I deserved more than others did, that I had been unfairly denied. I wanted what was not mine to have. It was an attitude that went beyond money. It destroyed things beyond wealth. But it did destroy wealth.

To the extent I have anything useful to say to you now, it’s because character and integrity have been beaten into me over the decades and because the advance of years has tempered my temperament.

Any which way but happy. Leo Tolstoy opened his classic novel Anna Karenina this way: “Happy families are all alike; every unhappy family is unhappy in its own way.”

To apply to investing: There are numerous labor-intensive, emotionally fraught, overly complicated ways to lose—many of them slickly promoted by Wall Street. I define losing here as trailing the market significantly over many years. That’s the almost predictable result of trying to beat the market, and it’s a virtually certain outcome of trying to get rich quickly.

Meanwhile, there are some simple ways to win, by which I mean capture the long-term return potential of stocks. That’s most reliably accomplished by simply matching the market’s return with broad market index funds. Those with the right temperament could follow this passive approach, accept somewhere around 9% a year and be happy. But that was boring to me. I made myself unhappy in a variety of ways until I fully absorbed those kindergarten lessons: Patience is a virtue. Slow and steady wins the race.

A foreshadowing of my future ego-driven investing miscues was my penny hoard. Some people collect coins. As a young teenager, I hoarded them. A whole $23 worth, in one of those bags from the bank that you see robbers carrying on TV. I had read that pennies—then made out of solid copper—cost the government more than one cent to make. That meant my rolls of pennies were worth more than $23, right? Melted down or… whatever? Who knows what I was thinking as I fancied myself outsmarting other people? As would be the case for decades to come, I had a wildly inflated view of my ability to understand world events and profit by anticipating them.

Perhaps I was minted from the same stuff as my late father, who kept South African Krugerrands in his sock drawer. I often faulted him for not investing more in the stock market in the early 1980s after he sold his business. But the truth is, I would ultimately do far worse for my family.

I would also do much worse than my late mother. I thought she knew little, and that her financial advisor—with whom I clashed—knew little more. But Mom had absorbed one lesson from her mother: Never sell.

She simply held on to good funds such as American Balanced, Income Fund of America and Vanguard Wellington for decades without worrying much about what the supposed gurus said on Wall Street Week. Thirty years after she inherited investments from her mother, and 20 years after she inherited more from my father, my siblings and I inherited them from Mom in 2021. She never sold.

It was I who had to do some selling for her to pay the huge expenses for her care in her final years. Her home care cost more than $200,000 in the last year of her life. Yet she still had a substantial estate to leave to her heirs.

Diary of futility. Sadly, from my early days gaming what the U.S. Treasury would do about pennies, my investment wisdom advanced fitfully—and my ego fended off all efforts to contain it.

In my 20s, I dabbled in Vanguard Group’s gold and energy sector funds—completely missing the tremendous performance of its health care fund. See a pattern? Copper, oil, gold—I sought riches in tangible things. Which, in the disinflationary boom of the 1980s and ’90s, was the wrong place to look. I imagine I avoided the health care fund in part because it was already popular with other investors, its portfolio manager lionized by the press.

I also invested in Vanguard’s STAR and Windsor II funds, which bored me. What do you mean it’s only up three cents a share? I wasn’t going to watch paint dry. Little did I realize that I was positioned for great success with those funds. I was contributing to my retirement nest egg from an early age, as encouraged by my father, and those dollars were going into solid, low-cost funds.

Neither STAR nor Windsor II became the stuff of legend like Fidelity Magellan Fund. I looked back recently, however, and was stunned by the wealth I had forfeited by failing to simply continue contributing to those funds over 35 years. There’s that word again: simply.

I was dating my future ex-wife when the sudden bull move hit in 1991, and I was seized by the prospect of doubling my money in a year in an aggressive growth fund. Never mind whether the fund was already popular. This time, I wanted in. I was chasing performance now. Many funds had posted eye-popping returns that year, but—like lightning—such good fortune rarely strikes in the same place twice. Instead, most of 1991’s biggest winners went on to disappoint—or to crash and burn.

I still recall that nearly 10 years later, my then-wife was beckoning me for some alone time, but I put her off to keep poring over my spreadsheets. I had to get rich for the sake of the family. We didn’t get much richer, if at all, although I weathered the dot-com bust reasonably well. But it wasn’t long before my family was broken.

Blaming myself, I took a brief hiatus from my investing obsession. But my investment knowledge, such as it was, was still just a dangerous tool in the hands of my ego. By my late 40s, during and in the aftermath of the 2008-09 financial crisis, I had lost almost everything through a stomach-churning series of horrible decisions. It was like a perfectly choreographed dive. I couldn’t have fallen faster if I had tried.

I had virtually nothing left with which to ride the market back up. Then, at the end of 2009, I was laid off from my newspaper job. It would be a year before I could make 401(k) contributions again.

Hard lessons. You’re not here for my personal tale of woe. Suffice it to say, there was divorce, excessive drinking, illness, two jobs lost, a home that plunged in value, spending well beyond my means and investing with borrowed money—with predictably disastrous results.

I thought I knew the risks of investing on margin—that is, borrowing money against your stocks—and I thought I was doing so within safe limits. But I didn’t realize that the broker has the right to declare that some of your holdings no longer qualify as collateral for your margin debt. They are no longer marginable. When that happened to my substantial investment-bank holdings in 2008—I was bottom fishing like a genius, you see—my margin gig was up.

Being forced to sell near the market low of 2009, I even lost the money I had mentally set aside for my kids’ college expenses. It all culminated in 2010 with my bankruptcy filing.

Slowly, I learned to live with myself again. Even more slowly, through better spending habits and by keeping my nose clean at work, my finances began to rebuild. The long bull market helped.

Though I was more responsible—and sober—still more investment lessons were to come. I hadn’t fully embraced indexing, although I admired index-fund pioneer Jack Bogle, founder of Vanguard, and learned a lot from his books and interviews. Contrary to Bogle’s advice, for much of the 2010s, I listened to the siren song of those who said market-cap indexing is blind, dumb and risky. I have a value bent, so that notion appealed to me. I was back to seeking gains anywhere except where other investors already had made them. Forget the FAANGs, I said to myself, as Facebook, Apple, Amazon, Netflix and Google continued their historic run.

My portfolio was chock full of value funds and foreign funds. Anything but substantial exposure to a U.S. market-cap index fund. I dabbled in faddish exchange-traded funds (ETFs), such as those seeking to profit from the growth of consumer spending in developing countries. Emerging markets were cheap, the experts said. I revisited my favorite themes with gold, agriculture and energy ETFs. I can’t tell you how much of the bull market I missed in such vain pursuits.

I knew that only a handful of investors can beat the market with skill, so I tried to find them. My last two big hopes were famed value investors Carl Icahn and Dan Loeb, both of whom have publicly traded investment vehicles. These investments languished for years while the market soared. Even as I eventually gravitated toward indexing, I didn’t give up on Loeb and Icahn until early 2020, when I replaced the last position with a total market index fund. (Loeb’s offshore fund has outperformed the index since I sold it—just goes to show—but still has lagged over the seven years since I bought in.) I ultimately had to fire not just two billionaire portfolio managers, but also demote myself as manager. No more trying to get rich by outsmarting other people.

Back on track. Of course, because I’m mainly tracking the market now, my results are closer to the index’s return. That may not feed my ego, but it feels right, like I’m a good steward of my capital. Realizing you have lagged the market by a mile year after year feels like hell. Not knowing how much you’re lagging is irresponsible, so I monitor my performance closely with a spreadsheet.

I’m still engaged with investing in a way that I enjoy. I still make decisions in which I find my experience and lifelong learning helpful. First, we all have to make fundamental asset-allocation choices based on our risk tolerance, time horizon and diversification preferences. Mine have been fairly steady for years, but I reevaluate them once in a while.

I have set trigger points for rebalancing and buying market dips. I make decisions about Treasury bond funds versus corporates and Treasury Inflation-Protected Securities. I also allow myself little side bets—satellite positions around the core of broad index funds and the balanced funds that I inherited from Mom. Those side bets are within preset limits, so I avoid dragging my whole portfolio down if I make a mistake.

I maintain an investment spreadsheet and investment journal tracking my stock-bond and U.S.-foreign mix, my satellite positions and other decisions, and my performance. Yes, I actually enjoy that. I’m happy with my recent batting average on the side bets. But I require accountability and I need guardrails—established limits on my investment opportunism. You could, of course, skip all this effort and just use balanced, asset-allocation or target-date retirement funds.

My system is likely to change soon because I’ve decided to seek professional financial help. With the inheritance from Mom, my circumstances have changed. And at my age, probably about 10 years from retirement, I need to know more than just what to invest in.

Getting help. I’ve learned the value of financial advisors. Proponents of doing everything yourself can turn self-sufficiency into a fetish, arguing that advisors’ advice is not worth the cost. But you will recoup those fees many times over if the advisor keeps you away from foolishness.

In 2016, when it came time for me to take over my mother’s affairs, I met with her retiring advisor, Joan, with whom I had bickered 16 years earlier, and her successor, Casey. They were prepared for the worst, but I was a changed man.

Casey, along with an estate lawyer, helped us create a family trust with a portion of Mom’s assets. I don’t expect market-beating advice from advisors any more than I expect it from the most illustrious investment gurus. I consider a financial advisor mainly a guide, a check on my worst impulses, and a source of counsel on broader personal finance issues. Casey wasn’t infallible, but she did redirect me on two occasions. The resulting profits more than covered her fees.

Now that Mom has died, I have retained Casey’s colleague Danine as my advisor—the first time I’ve had one for myself—and I have persuaded my brother to do the same.

I’m no longer trying to get rich by outsmarting other people. But I just might amass considerable wealth and leave my children a decent inheritance—if I don’t outsmart myself.

William Ehart is a journalist in the Washington, D.C., area. In his spare time, he enjoys writing for beginning and intermediate investors on why they should invest and how simple it can be, despite all the financial noise. Follow Bill on Twitter @BillEhart and check out his earlier articles.

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