Comments on: Felix TV: Action bias A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: DavidMerkel Thu, 21 Jul 2011 14:10:32 +0000 How I fight action bias for my clients (from my 8 rules):

7) Rebalance the portfolio whenever a stock gets more than 20% away from its target weight. Run a largely equal-weighted portfolio because it is genuinely difficult to tell what idea is the best. Keep about 30-40 names for diversification purposes.

8) Make changes to the portfolio 3-4 times per year. Evaluate the replacement candidates as a group against the current portfolio. New additions must be better than the median idea currently in the portfolio. Companies leaving the portfolio must be below the median idea currently in the portfolio.

By limiting the number of times that I trade, I make better, more rational, and fewer decisions. I act more like a businessman, and less like a stock jockey. I end up with a portfolio turnover rate of ~30%/year, rather than 130%/year more common to mutual funds.

By: dWj Wed, 20 Jul 2011 22:49:42 +0000 I’m not sure it’d be a bad strategy, in looking for a broker, to call up candidates, ask how the market’s doing today, and invest with the first one who can’t tell you. If you can find one, that is.