Daily Gains Letter

What You Can Learn from Missed Investment Opportunities

By for Daily Gains Letter |

Missed Investment OpportunitiesOne of the basic rules that investors should follow when it comes to portfolio management is to not have a bias. What biases eventually do is either hinder investors from making better decisions or cause investors to not even recognize an opportunity that can take their portfolio to new heights.

For example, take the Affordable Care Act, more commonly referred to as “Obamacare.” A friend of mine, who is saving for his retirement, has a bias when it comes to this topic. He says it’s not worth it for Americans, and it’s just another expense to add to the budget. It won’t stick around for long, he believes, and we will eventually end up back at where we are now.

He has his reasons, and as a result, he doesn’t want anything to do with companies that are in any way related to the Affordable Care Act–which includes pretty much the entire health care sector. “I don’t want to expose my portfolio to anything like this,” he said.

Recently, we were having a discussion and he told me that he “missed out on one big investment opportunity for [his] portfolio.” I asked him what that was, and he answered with another question: “Have you looked at the health care sector at all lately?” Please look at the chart below to see what he meant, and what he regrets.

XLV Health Care Select Sector SPDR NYSE Chart

Chart courtesy of www.StockCarts.com

The chart above provides a general idea about how the companies in the health care sector have done. This exchange-traded fund (ETF), which tracks the sector’s performance, is up nearly 100% since the Obamacare law was signed by the President back in 2010. Since June of 2012, when the law was upheld by the Supreme Court, this ETF has bucked the trend, going from trading around $36.00 to above $51.00 now—an increase of a little more than 41%.

If my friend didn’t have a bias and spent some time looking at what was happening, he wouldn’t miss out on the opportunity to grow his portfolio significantly.

Sadly, this is just one example of how having a bias can make investors miss out on a winning investment opportunity. There are many other errors that investors can make, denting their portfolio as a result.

When it comes to building a long-term portfolio, investors can avoid having a bias by simply looking at the cold, hard facts: examining the numbers, evaluating the information, and assessing the situation. In addition to this, investors should try to avoid noise as much as possible. Finally, once they have come to a conclusion after their due diligence, investors should use proper money management techniques on their portfolio.

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