It is finally here, our first full roundtable episode! [I know everyone was on the edge of their seat 😊]
At Painted Porch, our team is admittedly a group of finance nerds.
During a recent roundtable discussion, our team hit on a surprising truth: The most sophisticated thing you can do for your wealth is often the simplest and the most counterintuitive.
- Listen to the full Episode here (put this on during a longer drive or your evening walk). Approx 35 min long.
The episode takes a deeper look at the “Behavior Gap,” the discipline of doing nothing, and the mechanics of staying the course.
Brian Lloyd pointed to a concept coined by Carl Richards: The Behavior Gap. It’s the difference between the returns an investment generates and the returns an investor actually keeps. According to the famous Dalbar study, the average equity investor often underperforms the market by a significant margin. Why? Because, as humans, we are wired for survival, not for stock-market success.
When markets are at an all-time high, we feel “FOMO” (Fear of Missing Out) and want to buy more. When markets dip, our “fight or flight” response kicks in, and we want to sell to stop the pain. That gap, the cost of buying high and selling low, is what we hope to help clients avoid.
The Active Discipline of “Doing Nothing”
“Tinkering with a portfolio is like tinkering with an oil painting; the more you tinker with it, the worse it often turns out,” says advisor Justin Vlaanderen
In finance, there is a powerful “Action Bias,” the feeling that if things are volatile, we must do something. But the data shows that the most active traders often significantly underperform those who simply stay the course.
We view “doing nothing” not as laziness, but as an active discipline. It takes tremendous mental strength to stand still while the media is shouting about tech bubbles or AI hype. Our job is to be the “calm pilot” in the cockpit, ensuring that the plan we built for you in a calm moment is the plan we stick to during the storm.
One of the biggest hurdles for new clients is the fear of “investing at the peak.” If you have a significant amount of cash to put to work, the thought of a market drop the following week can be paralyzing.
Why We “Cut the Flowers”: Selling Your Winners
Perhaps the most counterintuitive part of our strategy is Rebalancing. In simple terms, this means selling a portion of your “winners” to buy more of your “losers.”
As Katie Newell points out, “If you own the S&P 500 right now, you are heavily concentrated in US Large-Cap Tech.” If those stocks go on a tear, they will eventually take up a larger percentage of your portfolio than we originally intended.
By selling a bit of what has outperformed (Selling High) and moving that money into areas that haven’t yet caught up (Buying Low), we ensure your risk stays in line. It’s inherently unsatisfying to sell the “hot” stock to buy the “boring” one, but it is the mechanical discipline that protects your wealth over decades.
The Painted Porch Bottom Line
Successful investing is a simple process, but it isn’t easy. It involves understanding the complexities of the markets while having the patience to wait for the outcome.
Whether we are ramping you into a new strategy or rebalancing you out of a crowded trade, our goal is the same: to make sure your behavior doesn’t get in the way of your goals.
Ready to get nerdy about your own financial plan? Let’s start a conversation.
Please share with friends, family, and add comments. We would love to hear from you.
*Source: DALBAR, Quantitative Analysis of Investor Behavior (QAIB)
Perhaps what is often missed or mostly never taught to active traders is the significance of “personal mass” as a kiel to keep one steady. Personal mass helps to steady the internal oscillation during a trade and can act as an absorber of outside noise, that often biases a trader’s decision making process. Just as significant as capital mass, personal mass helps steady the riskiest part of trading decisions and execution, the human. Without “personal mass” doing nothing is very challenging, however, with “personal mass” the act of doing nothing can become the trade itself.