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What can art collectors teach us about investing?

Heinz Berggruen was one of the most successful art dealers of all time. In 2000, he sold part of his collection of Picassos, Braques, Klees and Matisses to the German government for more than $100 million. His collection was worth well over $1 billion on the private market.

So how did he manage it? How could he possibly have known that those paintings would be worth so much money one day? Surely, he must be a genius? An art collecting prophet?

The reality, unfortunately, isn’t quite so inspiring.

Berggruen’s collection had little to do with skill or luck. Instead, it was the art world equivalent of throwing spaghetti at a wall and seeing what sticks. Berggruen bought a lot of art and some of it happened to do well.

People looked at Berggruen as if he was a genius, but 99% of the pieces he bought were of little value. It just didn’t matter because the remaining 1% were winners.

So what does this mean for you?

Well, this strategy can be beneficial for your stock market portfolio too. I’m not telling you to buy a bunch of individual stocks and see what happens. What we’re talking about here are index funds.

Diversity can disguise a multitude of weaknesses

You might have seen people do what Berggruen did with art but with predictions. A fund manager, social media influencer or author might tweet wild economic forecasts such as market crashes or the end of Bitcoin.

They throw so many of these bold predictions out into the world that some of them end up being right.

They might get praise for accurately anticipating a recession, but behind the scenes they’re removing all evidence of their inaccurate assumptions.

So how does this work for stocks? Well, by diversifying your portfolio with the help of carefully selected funds, you can use your wins to make up for your losses. It doesn’t matter if a high percentage of your stocks are underperforming. By holding all stocks, you’re guaranteed to hold what mathematicians call “fat tails”. These are the stocks that can become the needle in the haystack. 

Even the Jones’s have seen better days

I’m often asked by friends and family: “What funds do you recommend because mine are doing badly?” People don’t realise that it’s not the funds that are to blame.

People assume that everyone else is doing something different to them, without considering how global events affect the valuation of their portfolio.

The reality is everyone’s in the same position. Even the Jones’s portfolio probably looks worse now than it did last year. Thankfully, this doesn’t mean everyone’s on the wrong financial plan, or they’re no longer on track to retire at a reasonable age.

Your plan is uniquely you

Cast your mind back to when we completed your WealthMap. We will have taken everything from your income and your assets to your fears and your aspirations into account to come up with a plan that was 100% you.  

Other people’s goals and the day-to-day changes of the stock market are irrelevant. And remember, WealtMap compares your plan to over 100 years of historical events. Is the current economic backdrop worse than the 1970s when inflation hit 25%? 

Earlier this year I compared market turbulence to Formula 1: “People pay attention when there’s an incident on the track, but they’re rarely concerned about the petrol that’s fuelling the cars and making them race around in circles.”

Your portfolio is simply the fuel that propels your plan forward. Its job is to serve your plan, but it’s not the be-all and end-all.

Confide in your financial planner

Political, social and economic events can take their toll on our stock portfolios in the short term, but if you zoom out and look at the market’s performance over the last 100 years, it’s easy to see why the wealthiest have been in the game for decades. These fluctuations are part and parcel of the stock market.

However, we know that following a plan is easier said than done. Money is deeply emotional and sometimes, life can get in the way. That’s where our Momentum service comes in. You’ll have ongoing support to make sure you’re on track with your goals rather than wandering off course.

If there’s a problem, we’ll spot it and fix it for you. If there’s an opportunity, we’ll make sure you can take full advantage of it. Equally, we know when to keep our hands off and let your portfolio ride out the waves. 

Like Heinz Berggruen, we’ve got a strategy and we’re sticking to it. But it’s not about pretendng to be an investment genius, guessing the future, having insider knowledge or a list of secret funds that are somehow immune to market volatility. 

It’s about having an evidence-based approach to investing that proves that a diversified portfolio can’t fail for a long-term consistent investor who keeps their head during a crisis. 

Don’t believe anyone who tells you otherwise.

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