Fisher Investments Press: Own the World: Step 3, Blend Dissimilar Investments to Moderate Risk Relative to Return

Many investors think their goal should be to make as much money as possible—they want to maximize returns. Fisher Investments would say “think again” to that strategy. It’s not that Fisher Investments dislikes money. On the contrary, we’d all like to sip champagne from the deck of an obnoxiously large yacht. But constantly trying to maximize returns usually means taking excessive risks, and that can turn your Dom Pérignon into Pabst Blue Ribbon in a hurry. Instead of trying to maximize your returns, active investors should try to consistently outperform their benchmarks—but not by a ton. As covered in Step 2 of the Four Steps to Investing Success outlined in Chapter 6 of Own the World: How Smart Investors Create Global Portfolios, active investors will want to own relatively more of the types of stocks they expect to do well, but they shouldn’t ignore the others entirely. Think of these as core and counter strategies. If your core strategy falls flat, your counter strategy just might save the day. The performance of health care and technology stocks in 2000, as can be seen in Figure 6.1 of Own the World, provides an example.

After a raging bull market for technology firms in the late 1990s, tech cratered in 2000. The tech-heavy NASDAQ Index lost over 40 percent that year—a serious setback if you’d bet the farm there. Investors also owning some health-care stocks as a counter strategy, even if they believed tech was going to continue its stratospheric rise, fared much better. Incorporate a counter strategy for when things don’t go as planned. As covered in Chapter 3 of Own the World, Fisher Investments feels all major categories of stocks could get you to the same place in the long run, so there’s no need to make a huge bet in any single area.