Weekend Reading: Is Your Stock Portfolio A Museum or A Warehouse?

Vishal Khandelwal in his recent blog post reminds investors to ask themselves this question. He quotes Rework by Jason Fried. You don’t make a great museum by putting all the art in the world into a single room. That’s a warehouse. What makes a museum great is the stuff that’s not on the walls. Someone says no … There is an editing process. There’s a lot more stuff off the walls than on the walls. The best is a sub-sub-subset of all the possibilities. “It’s the stuff you leave out that matters,” writes Jason in Rework.

When you apply this crucial lesson to building your stock portfolio, it means that you are likely to succeed as an investor not just by the stocks you own, but more importantly by the ones you don’t. But often, we end up building warehouses of our portfolios, not curated museums. A stock is followed by another, then another, two more, three more, and on, and on, and on. Some people even maintain multiple portfolios, and each looks like a zoo of mismanaged, rowdy animals.

People buy stocks for all kind of reasons – they like them, their neighbours like them, their friends are making money on them, someone on Twitter is shouting about them, their prices have risen sharply in past few months, someone recommended them on TV, someone wrote about them on online forums, someone is boasting about them on WhatsApp groups, etc.

Investing follows life, and this is also what a lot of investors end up doing. They create crowded warehouses of portfolios in the initial years of their investment careers, realize most of their choices were mistakes, and then they start subtracting vigorously.

Lest you lose out on the positive compounding timeframe, you will do yourself a world of good by respecting and practising this lesson – of saying no to most things, of not adding a lot of unwanted stocks to your portfolios – early.

Khandelwal concludes by asking investors to be a curator of stocks, not a warehouse manager.