The Big Picture For The Week Of September 23, 2012

by: Roger Nusbaum

The original intention of this site (after the first two or three posts when I ran out of non-market related things to talk about) was to create a record of opinion that would hopefully be useful as our firm tried to grow. As the site (fortunately) exceeded the scale and reach I envisioned, the intention shifted a little; still a useful record of opinion but also content for anyone who was interested in managing their own portfolio to occasionally get little snippets that might be useful.

In most instances, I believe that the ability to manage one's own portfolio boils down to time available to spend on the task relative to the type of holdings used. A portfolio of 45 stocks will take much more time than a portfolio of four or five broad-based funds. I also think a huge part of the equation in terms of making things easier is understanding some of the behavioral quirks that can impede progress, or in some instances blow people up.

In this week's posts we've delved into the behavioral aspects thanks to some of the comments in the Seeking Alpha syndicated versions of these posts. Some of the comments have shown very little regard for risk which I find to be very shocking given how recently the stock market cut in half.

Just as Friday's post was inspired by reader comments, this post is inspired by this comment;

The only black swan negatives on mid-stream MLPs (outside of exploding interest rates which will kill everything else as well) would be tax policy changes and a secular decline in nat gas use.

That the reader is using the term black swan incorrectly is not a big deal of course, but I do think the comment reveals something interesting about perceived risks. In the last 12+ years the market has cut in half two times and I believe (not an original thought) that in both cases the market was done in by things that very few people saw... by things very few people could see coming.

The above comment is right about one threat to MLPs that may or may not ever come to pass to adversely effect the space, but the comment seems to not allow for the possibility of a threat that cannot be reasonably foreseen. If I am reading this correctly, then the next question is what percentage of market participants have not acquired the awareness to be concerned about what they don't know.

As a matter of philosophy, I believe the ultimate results that people achieve, that is having enough when they need it, comes down to savings rate and how they fared during downturns and what sort of self-destructiveness they did or did not succumb to over the years. There are countless other professionals who think this as well and plenty of research out there to back it up, but ultimately it is just a school of thought for you to buy into or dismiss.