Hold On And Just Relax

We throw around the word ergodicity here quite a bit. The big idea is that the market will go up by some amount in the future either with you or without you so it might as well be with you along for the ride. The idea of never doing anything doesn't really fly as occasionally changes need to be made because of something different with the stock or fund or some sort of change in life circumstances where the asset allocation needs to change. 

The following is from a client who has been with me about 20 years. 

The column with the bigger numbers is the current value and the other column is the cost basis. A couple of the holdings are individual stocks and several are sector ETFs. The one in the middle that is flat is a fixed income ETF. This isn't a brag about picking what to own. One of them is a broad tech sector fund, there's no skill or even luck in choosing to own the tech sector. Anyone with a diversified portfolio has the tech sector in there one way or another. 

The client's account is a diversified portfolio so of course there are things in there that have not gone up anywhere near as much as the broad market.

The point is understanding the value of knowing when not to get in the way. Quite obviously none of them went up in a straight line. And while I did shave a couple down here in there to rebalance, this sort of thing is mostly a function of understanding ergodicity. 

A very specific memory for learning about this came from when I was working a Schwab in the 90's. I helped out with some issue on an account that had a little over $1 million which was less common back then, and about 80% of it was Dell Computer. He bought and never sold it and it made him wealthy. 

Whatever the best performing stock of the last 20 years is, there have been long stretches where it traded terribly. Microsoft in this century is up 1219% per testfol.io versus 657% for the S&P 500 yet it lagged badly from 2000-2014. Since its IPO, Microsoft is up 790,000% versus 6841% for the S&P 500.

While I doubt too many people would have held through 14 years of lagging, the point about ergodicity and doing less are still embedded in the result and certainly selling a stock based on a bad quarter is very short sighted. Your "favorite" stock or fund will at times lag badly. 

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