It's a bull market folks, and things could scarcely be better for stocks. Never mind this bull market actually began in 2003, now your portfolio is really gaining steam and you've finally taken notice. Forget about being a landlord and dealing with that pesky rental property's leaky toilet, it's safe to look at your stock portfolio again—and it feels good! You may have even heard from your broker or financial advisor recently, calling to let you know how much money you've made during the day, month, or year.
You're smart, savvy, and your portfolio value is up. It all reminds me of a song from HBO's new comedy series The Flight of the Conchords. If you haven't seen the show, you should. It's deadpan comedy at its best and features two guys from New Zealand who move to New York to make something of their band. Their song, "Part-Time Model" is strangely analogous to investor sentiment at this stage of the bull-market.
"Looking 'round the room
I can tell that you
Are the most beautiful girl
In the room.
In the whole wide room…"
You own a few gems in that portfolio of yours that you picked and have skyrocketed since you bought them. You knew the new wireless phone/music player/internet/email gadget was going to be a hit, didn't you? Yep. You bought the company stock a year ago and look at it now! You had a hunch the demand for oil across the globe would increase and semi-submersible rigs would be in short supply so you gobbled up shares of that drilling company and watched the share price climb too.
At your cocktail party with all of your friends, you're the most beautiful investor in the whole wide room.
"And when you're on the street
Depending on the street
I bet that you are definitely
In the top three
Good looking girls on the street
Depending on the street…"
But when you leave that room, how outstanding of an investor are you? Sure your portfolio has increased in value over the last year, but can you quantify the performance? You own a few winners in your portfolio and you have more money than last year. This all seems fine and dandy, but compared to what?
Smart investors benchmark their portfolios against a major index like the S&P 500 or MSCI World depending on the construction of their portfolio to help properly diversify and manage risk while still reaping the rewards of stock investing. Have you beat or underperformed an appropriate benchmark? Do you even have a measuring stick to judge how you've done at all?
Your portfolio gains may not be looking so good anymore…depending on the street.
"And when I saw you at my mate's place
I thought, "What is she doing at my mate's place?
How did Dave get a hottie like that
To a party like this?
Good work, Dave."
Ooh, you're a legend, Dave…"
OK, there is nothing analogous to investing about that last verse, but it's funny anyway. Remind yourself that beauty is relative. In the comfort of your own home, you're likely the cat's meow. But head to South Beach in Miami, and you could find some difficulty turning any heads. Treat your bull-market portfolio performance the same ensuring you're reviewing it via an appropriate lens. If you don't, your portfolio might be exposed to big risks you weren't even aware of, or missing out on big opportunities you hadn't yet thought of. After all, you aren't the only one seeing gains.
"You're so beautiful
You could be a waitress
You're so beautiful
You could be an air hostess in the '60's
You're so beautiful
You could be a part-time model…"
For instance, most American investors are far too heavily invested in US stocks. Did you know the US makes up only about half the market weight of the investible stock world? What's more, foreign stocks have outperformed US stocks for the duration of this bull market. You could be missing out on all of it without the right frame of reference!
With the right benchmark, you might determine you aren't quite as brilliant an investor as you once thought.
But that's OK because…
"You're so beautiful
You could be a part-time model
But you'd probably still have to keep your normal job,
A part-time model."