Heed These Red Flags Lurking in Your Portfolio and Unleash Better Returns

TLDR: Are They Doing What They Said They Would?

For 25+ years I founded and ran an institutional money management firm.

I was an old-school bottom-up small-cap stock picker running $2.5B. I retired and now coach people on business, money mindset, and investing. One way I work with clients is to review their portfolios and help them prepare for meetings with their advisors.

There’s a lot of funky business out there, but these 3 questions will flush the rabbit:

1. Is the right benchmark being used?

One client owned only corporate bonds. The benchmarks listed were for short-term U.S. government bonds and municipal bonds, which were not only irrelevant, but also misleading. “Govvies” and “munis” have lower yields than corporates, and this makes the corporates look more attractive. It’s like thinking your golden retriever is a giant among dogs because you’re comparing it to a chihuahua rather than other golden retrievers.

2. Are there microscopic positions?

If you hold positions so small that they would need to go up 5X to have an impact on your portfolio, what’s the point? If you’re paying for stock or ETF selection, why is your advisor not willing to take a stand with their position sizes? There is no good reason.

3. Is there too much or too little turnover?

Eyeball all the buys and sells over the course of a year — does it make sense for the strategy? The number of trades for a buy and hold portfolio should not look like one for a day trader on methamphetamines.

If the answers are “no, yes, yes” do a deep dive or cut your losses.