Here are four ways embracing my ADD has helped make me a better investor.

I only buy kittens if I’m willing to own cats. Cute kittens turn into cats. Cats have to be fed regularly, they have kitty litter boxes that have to be cleaned and they need to be taken in periodically for routine medical checkups. Like kittens, most investments ideas are exciting at first but every investment requires at least some amount of time on an ongoing basis. If I’m not willing to spend the time on something in the future, I’m not willing to spend the money on something today.

I trade less. In comparing a typical research report to a meal, the first page or two would be fun for me to consume (the desert) but every page afterwards would be more and more difficult to digest (brussel sprouts anyone?). After reviewing my historical returns, I found my best performers were the companies where I had read every page of the reports and truly understood what I was buying rather than just skimming the press releases. If I’m not willing to read every page, then I won’t buy it. If I’m not buying, then I don’t need to sell and so I trade less.

I delegate better. I was fortunate enough last year to be introduced to an amazing corporate bond investor. His expertise is buying bonds heading into and/or coming out of bankruptcy. No matter how hard I tried, I just couldn’t stay focused long enough to learn and understand all the capital structures, nuances and abbreviations of this market. Instead, I just hired him to manage that part of my portfolio.

I spot flaws in stories easier. Companies commonly use stories to help sell a brighter future (we are the next Google) or explain away the recent past (sales fell because of bad weather). One way I’ve embraced my ADD is by reading 40-50 newspapers/websites/magazines on a daily basis. The advantage this gives me is a much wider range of data points to compare to the story the company is trying to sell. Restaurant Company A press release said their new strategy is working because same store sales were up 3% but restaurant industry magazine reported average same sales in that sector was up 4% mostly due to higher food prices.

Researches from Harvard University and the University of Pennsylvania found study participants were more likely to seek out advice and less likely to determine if that advice was good or bad when they were made to feel anxious. [i]

In a follow up study they also discovered participants who were made to feel anxious were more open to, and more likely to rely on advice, even when they know the person offering the advice had a conflict of interest.

Talk about music to Wall Street’s ear, but don’t start getting anxious already.

The authors offered two steps to help reduce the natural tendencies we experience when stressed — being more receptive to advice and less discriminating of the advice given.

1) Refrain from making major decisions until you are in a relaxed state and can clearly reflect on the matter at hand.

2) Avoid making a quick decision or obsessing over details. Using a metaphor from golfing, rather than focusing on the endless details of the perfect shot — such as the correct club, proper grip, turning your shoulders just so, and so on — it may be more helpful to focus on the more important outcome: where you want the shot to land.

In addition, I am offering a third:

3) Get used to it.

I used to hate ordering wine at restaurants. I always felt rushed by Mr. Fancy Pants Wine List Guy as he stood next to me, waiting for me to try to make a decision in what felt like two seconds between rows of wines I knew next to nothing about.

Now, I am proud to say I have had enough wine to know what I like and do not like as well as what a reasonable price is to pay for those wines.

The point is, if you do not do something often enough, it is difficult to become comfortable and knowledgeable doing it especially when you are under pressure.

Full disclosure: I’ve been a long-term owner of both index and actively managed funds over the years; I just haven’t been the long-term owner of the same number of index funds over that time frame.

Sometimes it seamed my entire account was in index funds while other times I may have owned only one or two.

Here are four issues I consider when deciding if I should not buy an index fund for a particular piece of my portfolio.

I have too much skin in the game

I sold out of my S&P 500 index fund for about five years in the early 2000’s and moved to an actively managed fund that held a lower level of financial stocks as compare to the index. I had no idea if owning financials was a good or bad idea, but at the time I worked for a major bank and I didn’t want my livelihood as well as my investments all tied to the same sector.

I want more skin in the game

Goldman Sachs put together this piece showing how the S&P 500 sector composition has changed over the past 40 years.

Looking at this graph made me remember how I wanted to sell my 500 Index fund during the dot com boom because it ONLY had 30%+ of its holdings in tech stocks. I don’t remember why I didn’t sell, but it worked out in the end.

Today, my U.S. stock exposure looks very different from this chart. I have almost triple the exposure to consumer discretionary stocks because I feel the consumer is stronger and more willing to spend than people expect.

I hope I picked the right door.

I don’t like the current risk/reward of the index.

The Barclays Aggregate Bond Index is most commonly used index for U.S. fixed income investors. This index, as with most index funds, rarely remains fixed for long. Here are some of the major changes to the Barclays Aggregate over the past 25 years.

In addition to these rule changes, the underlying ratio of holdings has also changed drastically over time. U.S. government bonds made up 47% of the index in 1994 but had fallen to 22% by 2002 and now accounts for 36% of the index. Note - when combined with government-affiliated mortgage bonds this figure jumps to almost 78%.

The current duration of this index is now just over 2 years and is yielding just over 2%. I just don’t feel comfortable essentially lending my money out for two years to hopefully earn 2% per year.

I found a better place for my money

I started noticing semi-trucks with air deflectors under their trailers a few months ago. I can only imagine how the first sales pitch went: “I want you Mr. and Mrs. Truck Owner to spend your hard earned money to put more weight on your trucks and I promise it will actually increase your profits and improve your fuel economy.”

Sounds like the typical actively managed mutual fund pitch to me: “I want you Mr. and Mrs. Investor to spend your hard earned money to add an additional layer of expenses to your investments and I promise it will actually increase your profits and improve your returns!”

Well, turns out some sales people actually deliver on their promises. The trucking industry calls these “trailer skirts” and they have been shown to increase fuel economy by 7-8% at highway speeds.

Certain mutual fund managers have consistently shown they are worth the additional expense and I am not willing to bypass these managers simply for the sake of lower fees.

It seems to me whenever a major economic data point (such as employment numbers, rate of inflation, etc.) is released there’s also a series of rebuttals released the same day claiming the “real” number is very different because of reasons X,Y and Z.

Sometimes I am inclined to believe the “official” number and sometimes I am inclined to believe the “alternative” number.

One resource I use to help me determine which side to believe is by reviewing any changes in the number of packages being shipped.

These charts show the average daily package volume for UPS as well as the year-over-year percentage change.

These numbers have a very strong correlation in time and direction with Total Non-Farm Private Payrolls as well as the S&P 500 Stock Index.

FedEx’s average daily package volume also tracks the economy, however, because they use a May 31^st year end, the quarters don’t line up quite as nicely.

This chart shows the average daily package volume (in thousands) for FedEx as well as year over year percentage change.

What about you?

What non-traditional data points do you regularly review?

Sources: UPS.com, Fedex.com, StLouisFed.org

I used to watch the old Rocky and Bullwinkle cartoons and in many of the episodes Bullwinkle asks Rocky “want to see me pull a rabbit out of my hat?”

Rocky always replies with, “That trick never works.”

Bullwinkle comes back with, “But it’s got to work this time!” Yet it never does.

What made me remember the Rocky and Bullwinkle cartoons was how easy it was for me to pull a rabbit out of my hat this weekend even though I had failed in every single one of my previous attempts. Actually, it wasn’t a rabbit and it wasn’t a hat, it was the Christmas lights for the house and yard and knowing exactly what string and extension cord went where without climbing up and down ladders all day in trial and error.

The difference between this year and all the prior frustrating years is when I packed the lights away last year I labeled each string with where it went. Now almost 12 months later, I have a better memory of what worked and got better returns.

Like most good things in life, I learned this from my wife. She is an amazing cook but when it comes to dishes, she doesn’t make that often she still checks the notes in her recipe box to make sure she hasn’t forgotten anything.

This same technique holds true with investing.

How reliable is your memory from the last time you bought a corporate bond?

Do you remember all of the key financial points to check?

What appealed to you in the the last bond you bought that worked out better than you expected?

What did you overlook in the last bond you bought that worked out worse than you expected?

Unless you are constantly buying bonds, or any other investment for that matter, it becomes difficult to remember every aspect of not only what’s important (i.e. ingredients) but also what’s important to you (i.e. leave it in the oven 5 minutes longer than the recipe calls for).

I keep short notes on my computer on each bond trade. These notes list four things: yield to call, yield to maturity, if I think it will be called prior to maturity and what was the most appealing feature of the bond.

Reviewing these notes, especially for the trades that have not worked out, has helps me become a better investor.

Yesterday I heard an economist talking on the radio saying “we are due for a stock market crash any day now because the current upswing in stock prices has lasted longer than the average upswing.”

This reasoning made no sense to me.

According to the Property Casualty Insurers Association of America, a trade association that analyzes insurance data, the average driver will file an auto related insurance claim once every 17.9 years.

Using the economist’s reasoning, if I got into an accident today I could drive recklessly for the next 17 years because I would not be “due” for a crash until then.

What if its been 18 years since my last accident, should I never drive again?

What is the average crash survival rate?

According to the the National Highway Traffic Safety Administration, in 2009 there were 10.8 million motor vehicle related crashes resulting in 30,800 fatalities (latest data available).

That is a 99.71% crash survival rate.

If you take away the fatalities due to speeding (10,600), the fatalities due to alcohol or other drugs (11,400) and the fatalities due to driver distracted by something in the car (5,500) the crash survival rate increases to 99.97%!

Crashes happen all the time

Just in the last two years, we have seen several major market crashes such as: U.S. stocks during Q3 2011 when the debt ceiling crisis hit a boiling point, U.S. bonds of all types during June of this year, municipal bonds late 2010 and international stocks and bonds early 2010 when Portugal, Italy, Greece and Spain were in the news.

Each of these crashes caused temporary damage to portions of my account yet my portfolio crash survival rate remains at 100% because I maintain a diversified portfolio (no speeding here), I don’t panic (I think drinking wine helps with this) and I rebalance regularly (no distractions here).

How are you helping to improve your portfolio crash survival rate?

It seems to me whenever a major storm is about to hit somewhere, the news always shows pictures of grocery store shelves or sections of Home Depot that have been cleared out by shoppers desperate to get their hands on anything that might provide for them until the storm passes.

No one forced those panicked shoppers to grab carts full of goods. They stocked up because the fear of going without was greater than the fear of having too many cans of food on hand when the storm passed.

This is what I imagine the pantry looked like for those shoppers after they got home. Shelves filled with everything and anything.

Eventually, however, panic fades and food stockpiles slowly turn into just everyday pantries.

Like the shoppers filling their carts on TV, investors became panicked during the 2008/2009 storm and started stockpiling their cash and now five years later, they’re still at it.

Not only are people hoarding cash in savings accounts, they’re also stockpiling other perceived “safe” investments such as CDs, US government bonds, and bonds of well known companies.

Proof of this can be seen in the low yields investors are willing to accept.

Since no one HAS to buy a CD, banks have learned the greater the demand is for CDs, the lower the yield banks have to pay in order to entice people to buy them.

I’m guessing since the national average yield on 2.5 year CDs (matures April 2017) is 0.15%, demand for CDs remains very strong.

Similarly, companies are able to pay very small yields on their bonds because demand for bonds remains strong.

Here is a listing of the earliest maturing bond with a yield to maturity of 1.00% of greater for each of the companies in the Dow Jones Industrial Average. [i]

Name Symbol Maturity Yield to Maturity

3M MMM3869561 6-26-17 1.29%

American Express AXP.MZ 9-13-17 1.80%

AT&T T.MB 5-15-16 1.17%

Boeing BA.GCE 11-20-16 1.06%

Caterpillar CAT.GQO 3-15-16 1.13%

Chevron CVX3938384 12-5-17 1.48%

Cisco CSCO.GI 3-14-17 1.26%

DuPont DD.HL 12-15-16 1.01%

Exxon XOM.GH 7-2-17 3.79%

GE GE.HAS 11-15-14 1.00%

Goldman Sachs GS.AST 11-15-14 1.03%

Home Depot HD4047738 9-10-18 1.89%

Intel INTC3940192 12-15-17 1.56%

IBM IBM3816099 2-6-17 1.23%

Johnson and Johnson JNJ.GO 8-15-17 1.48%

JP Morgan JPM.RM 5-1-15 1.10%

McDonalds MCD.HD 3-15-17 1.28%

Merck MRK3671639 9-15-17 1.51%

Microsoft MSFT3926357 11-15-17 1.27%

Nike NKE.GE 10-15-15 1.21%

Pfizer PFE4013015 1-15-17 1.12%

Proctor & Gamble PG.HN 2-15-19 1.93%

Coca Cola KO3830397 3-14-18 1.61%

Travelers Insurance TRV3668412 6-20-16 1.12%

United Technologies UTX3860971 6-1-17 1.32%

United Health UNH.HP 11-15-16 1.09%

Verizon VZ.RJ 2-15-16 1.29%

Wal-Mart WMT.HZ 4-5-17 1.34%

Walt Disney DIS3819067 2-15-17 1.14%

I view cash, CDs and these types of corporate bonds as the “canned goods” of the finance world.

How long are you going to hoard your cash waiting for the storm to pass?

I used to think the answer to this question depended on where you put your money; mutual funds were for investors and individual stocks and bonds were for gamblers.

The game of Scrabble, however, taught me it’s not WHERE you put your money that makes you an investor or a gambler but WHY you decide where to put your money.

Do you know what “stems” are? In Scrabble, stems are five or six letter combinations of the most popular letters that if you add another letter you will likely get new word. For example: add an S to STARE and it becomes STARES. Add an X to SATINE becomes SEXTAIN.

Do you know the Q words that don’t have the letter U such as QAT, QOPF, QI, or QANAT?

Do you know all the 3 and 4 letter J words?

I still don’t know all the answers to these questions but all it took me was getting annihilated game after game by my aunt to realize there was more to Scrabble than just blindly grabbing tiles (mutual funds/stocks/bonds) and hoping with just my knowledge of common words I could earn enough points (dollars) to help me win the game (retire on time).

It doesn’t matter what they’re buying (mutual funds/stocks/bonds), investors already know what traits they are looking for in their purchase, how this new purchase will complement their current holdings and they will tell you multiple reasons why they’re buying what they’re buying.

Gamblers, on the other hand, tend to just have one reason why they bought something: someone else (magazine, neighbor, advisor, etc.) said I should.

Look at your portfolio. How many of your holdings were purchased by you the “investor” or by you the “gambler”?