Why to Keep a Portfolio Journal

by | Oct 14, 2015 | Podcasts, Investor Behavior

Individual investors and investment advisors alike can benefit from keeping a portfolio journal. Having a handwritten record of past thoughts can be invaluable to our decision-making process in the future. Making financial decisions isn’t easy, and neither is giving financial advice. That’s why we should all be keeping a portfolio journal no matter what our role is in the portfolio management process. Here are some of the reasons I think we could all benefit from doing so.

To Know Yourself Better

A great way to begin a portfolio journal is with an investment policy statement. Whether you’ve worked with an advisor to create one or have come up with your own, it’s important to get this information recorded. Some of the subjects you’ll want to make note of are your investment goals and objectives. It’s important to define why you are investing, why you are choosing a particular strategy, and what your expectations are.

It’s also crucial to note your risk tolerance at the beginning of a portfolio journal because, due to recency bias, our risk tolerance often ends up answering the question, “What has the market done over the last 6 months?”, instead of, “How much volatility am I willing to endure in my portfolio?”.

Once this information is recorded, it will be there to remind you why, when, and how you began the portfolio. You need to get to the core of why you are investing and stay accountable to those reasons.

To Keep Track of Changes

It’s not a great idea to change your personal investment policy statement frequently, but over the course of a lifetime, things will change. A portfolio journal will be an excellent place to keep track of these big changes. People get married, divorced, buy houses, have kids, and more all the time. As we say, that’s life. Big life changes might mean changes to your goals and objectives. When something big changes, it’s important to reassess where you’re at and where you’d like to go. Is it the same as before or has it changed? If it’s changed, why and to what degree? Making note of any changes in your life that affect your investment goals and objectives is crucial because it will help you definitively remember if and when you implemented the corresponding changes to your portfolio. By knowing this you’ll be able to assess how those changes have affected the outcomes since then.

To Vent

One of the best reasons to keep a portfolio journal is to vent. Journaling your emotions can serve multiple purposes. It not only lets you clarify your thoughts, but also provides a therapeutic release. Additionally, it can help save you from hindsight bias. When you look back at your own handwriting on paper, it has a funny way of making you own up to whatever decisions you made.

The best time to break out your portfolio journal will be at the extremes. Make sure to write down your feelings when you absolutely love a part of your portfolio. Be twice as sure to write down your feelings when you absolutely hate a part of your portfolio. We are most vulnerable at the extremes and this is precisely why you should want a record of your feelings from these moments. Keeping track of these emotional patterns might shed some interesting perspective on your investment philosophy. You might learn that you’ve positioned yourself too aggressively in the market or you could realize that you’ve felt this way before and need to sit on your hands. The point is that you’ll be more aware and it will feel good to let your feelings out somewhere.

Learn from Past Successes/Mistakes

I think the area a portfolio journal can help the most is to let us learn from our past successes and mistakes. We’ve all made mistakes before, and they almost always provide excellent learning opportunities. The problem is identifying them because, most of the time, mistakes don’t seem like mistakes when we’re in the process of making them. By noting any portfolio changes you make and your reasons for doing so, you will have the opportunity to look back on those decisions in the future. Some of them will undoubtedly make you cringe, but it will also show you how far you’ve come. On the flip side, you might look back on what seems like a great decision but realize that you were right for all the wrong reasons. This is all invaluable information in the big picture that will help you successfully invest for the long term.

One of my favorite quotes is, “History doesn’t repeat, but it does rhyme”. We can glean an abundance of useful information about ourselves by analyzing our own history, but that’s only if we have one to look at. In order to have a personal history of our portfolio and decision-making process, we need to document things as they occur. A portfolio journal is a great way to become your own personal historian.

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