If you’ve been a TradeSmith reader for a while, you’ve seen my face on dozens (maybe hundreds) of emails, research pieces, and promotional messages.
I try to stay in touch with you so often because I love this business. I love helping people achieve their financial dreams.
I love creating software products that help people make great financial decisions, increase returns, and avoid big losses.
And I’m looking forward to the work the TradeSmith team and I will continue to do in the new year to bring you more of our targeted market research, software, and advice.
However… there’s something about my industry that drives me crazy.
It makes me feel like my colleagues and I are doing you a grave disservice.
Before you go on, you should know there’s a powerful reason why I’m bringing up this issue in my industry.
For some people, it’s controversial. But it’s something that could help you drastically shorten the time it takes to achieve even the biggest financial dreams.
There’s a huge payoff for you at the end.
But first, let me tell you about one of my industry’s greatest failures… a way in which we’ve let a lot of customers down.
The Great Distraction
The marketing… the incessant, hype-y marketing.
It’s the biggest complaint the industry hears about every day.
The marketing.
I’ll be the first to tell you that I don’t like how our industry markets.
There’s too much hype for my taste. There’s not enough “getting right to the point” for my taste.
However, the simple reason our industry does it this way is because that’s the kind of marketing that works best.
That’s the kind of marketing that generates the best response in the marketplace.
That’s what draws the greatest level of interest. So that’s what much of the financial research industry uses.
As some people in our industry say, “If the customer wants to complain to someone about our marketing style, he should discuss it with the mirror.”
But when it comes to our marketing and the products we deliver to customers, I believe we’re making a huge mistake. I believe all the time and focus the financial research industry places on “single stock picks” is a disservice to its customers.
It’s a distraction from what REALLY matters to your success as an investor.
I believe all the time and effort the financial research industry places on “single stock picks” willfully ignores more important issues and promotes financial illiteracy and wealth inequality.
I’m sure you’ve seen dozens of marketing pitches…
“This tiny drug stock could explode after Phase 3 trial results are released!”
“This stock could rise 400% as Apple orders more and more of its special technology!”
“This 5G stock could soar as its technology is rolled out all across America!”
What can I say? People love a good stock story (me included).
People love to bet on individual stocks with big potential.
People like those stories so much that our industry places a huge amount of focus on them.
We obsess over finding and selling stock picks, stock picks, stock picks.
And while I’m not proud of how we market, I won’t apologize for it. I won’t apologize for what our customers want.
Still, I believe investors are making a big mistake by spending so much time and focus on individual stock ideas.
This brings me to our greatest failure… and how we can make our greatest improvement in our service to you.
Every great investor knows that individual stock picks are a relatively small factor when it comes to achieving success.
Really great investors know obsessing over individual stock picks at the expense of more important things is an amateur move… a chump move.
You see this concept emphasized over and over in the greatest investment books…
…You hear it over and over in interviews with legendary investors…
…And if you work with great investors, you hear it over and over directly from them.
Obsessing over single stock picks is a fool’s game.
It’s an amateur move that will hold you back and increase the time it takes for you to achieve your financial goals.
Obsessing over single stock picks is one of the hallmarks of financial illiteracy.
Most investors spend most of their time and energy on individual stock ideas, so there’s a good chance you’re making this mistake.
I’m sorry you had to hear it from me. But I care about your success, so I’ll give it to you straight.
I don’t want to see you end up yet another victim of the Wall Street machine or our own psychological pitfalls.
I want to see you achieve the resolution so many make this time of year… money mastery.
I don’t want to see the Wall Street system take advantage of you.
So if focusing lots of time and effort on stock ideas is a fool’s game, what should we focus on?
What do investment masters spend most of their time and energy on?
What separates the rich from the poor?
If stock ideas don’t make the difference, what does?
The really important factors in your success as an investor… the big, move-the-needle things we should all be obsessing over…
Are three things:
- Asset allocation,
- Position sizing, and
- Position management.
These are BY FAR the most important factors in your success as an investor.
The world’s most successful investors, the truly wealthy, have said this repeatedly.
These are the secrets of success the rich have used for centuries.
These are the concepts you must master if you want to achieve lasting success as an investor or trader.
These are the concepts that separate the haves from the have-nots.
These are the concepts that will make you financially literate and take you to “master” level.
The vast majority of your time and energy as an investor should be spent learning and applying these super-powerful ideas.
Yet… when you look at the totality of my industry’s promotional materials and research products, you’ll see that material on asset allocation, position sizing, and position management comprise a pathetically small amount of material on the most important things.
It’s a pathetically small effort to educate people on what really matters when it comes to succeeding as an investor.
So indirectly, our industry is encouraging financial illiteracy.
It’s encouraging people to be on the wrong end of the haves and the have-nots.
It’s like we’re a health and wellness center, and instead of devoting our time and energy to extolling the virtues of healthy eating, quality sleep, and exercise (the critical, foundational ideas), we are devoting the bulk of our time and energy to telling people which kind of protein shake we like best (a less-than-critical idea).
We may have found a heck of a good protein shake with a great chocolate flavor, but when it comes to helping you achieve maximum health, it’s not even in the same solar system of importance as the critically important things like sleep, diet, and exercise.
It’s a distraction from what really matters.
Now, many of my colleagues say, “Keith. Just give the customer what they want. Don’t try to educate anybody. Don’t try to get people to eat their vegetables and go to the gym. Most people are lazy and undisciplined. They won’t put in the work. They don’t want to learn. Just sell them sugary desserts and stand aside as they choose to be ignorant and travel on the path of self-destruction.”
That’s how a lot of people in the investment business approach it.
They don’t believe people will listen to reason.
They believe people won’t put the work in and won’t act with discipline.
They say the wealth gap exists because people are lazy and undisciplined and fall prey to psychological pitfalls.
And they’re not going to change… you’ll just come off as a nag.
This all might be true for some people.
But I believe you found TradeSmith and are reading this newsletter because you truly aspire to learn and grow and succeed.
You aspire to be (or remain) a “have” instead of a “have-not.”
You want to be a money master, not another victim of the Wall Street lawnmower.
If this describes you, let’s discuss what are BY FAR the most important factors in your investment success.
Let’s discuss what it means to be truly skilled with money instead of yet another chump that Wall Street milks like a cow.
The Foundation of Every Solid and Successful Portfolio
Let’s talk about the importance of a strong foundation.
If you’re a parent or grandparent, I’m sure one of your greatest goals is making sure your children or grandchildren have strong character foundations.
You want to see them treat people with respect… to have a strong work ethic… and have resilience in the face of adversity.
If someone does not have a strong foundation rooted in those important character traits, they’ll likely struggle in life.
That strong foundation is critically important.
Or… take athletes. If they don’t have a strong foundation rooted in the fundamentals of their sport, they are sure to struggle.
A strong foundation is critically important.
Take building a house. You can have the best finishes and the finest furnishings in your dream house, but if the house is built on an unstable foundation, you’ve got a shoddy, dangerous house. You’ve got a disaster in waiting.
Those beautiful finishes and furnishings will eventually end up in a heap.
A strong foundation is critically important in just about everything we do in life… including investing.
What stocks you buy over your investment career is one of the least important factors when it comes to achieving investment success.
I want to see you win.
I want to make sure every TradeSmith member has incredible financial knowledge and the tools to implement that know-how.
I want to see you achieve your financial goals in record time.
I know the only way you’ll do that is by focusing on what really matters… and those are the critical, foundational ideas I want to share with you in the rest of this educational series.
Now…
Let’s go back to that house analogy and the importance of a strong foundation.
Think of your investment portfolio as you would a house.
When it comes to wealth and investing, your portfolio needs to be built on a solid, sturdy foundation. The frame needs to be strong.
If you don’t have these two things, everything else is meaningless and the house is destined to collapse.
When it comes to wealth and investing, there are three major things that compose the foundation and frame of your “house.”
They are:
- Asset allocation.
- Position sizing.
- Position management.
All the best,
Keith Kaplan
CEO, TradeSmith