Avoid the Blame Game
by Charles B. Carlson, CFA
Dow Theory Forecasts


It has become acceptable these days to blame others for our own woes, including investment losses. Indeed, the reason my portfolio is down so much is the fact that corporate America and Wall Street are run by a bunch of crooks, right?

The problem with playing the blame game is that it is extremely unproductive. Indeed, focusing the blame on others merely deflects the real problems affecting portfolios, problems brought on primarily by the portfolio owners.

Everyone makes mistakes. Smart investors, however, learn from those mistakes, fix portfolios, and avoid making the same mistakes in the future. But to make these fixes, you need to focus on the mistakes. The problem with playing the blame game is that it rarely results in a meaningful examination of what went wrong and, most importantly, how to correct the problem.

To be sure, I'm not giving a free pass to those crooked executives and board members who used company resources as their private piggy banks. Nor am I giving absolution to the regulators and auditors and politicians who were asleep at the switch. And I acknowledge that the "crisis of confidence" on Wall Street has added to the downward pressure on the market.

But let's be honest - investor portfolios aren't down 60% or more just because some questionable types inhabit a few executive offices throughout the country. Investor portfolios are down 60% or more for many reasons, not the least of which is that many investors didn't follow prudent investment strategies.

They didn't diversify.

They didn't match investment style with investment selection.

They didn't set proper portfolio asset allocations (stocks versus bonds versus cash) relative to investment time horizons.

Another problem with playing the blame game is that it provides an easy reason for investors to stay out of the market at a time when stocks are offering their cheapest prices in years. Indeed, the notion that "since companies are crooked, it pays to stay out of the game" is gaining continued mind share among investors. The problem is that these same investors who are now out of the market because they believe the game is rigged will have no idea when to get back into the market since their whole investment approach is predicated, not on valuations, but a concept or a feeling that doesn't lend itself easily to analysis.

Bottom line: Don't compound your errors by refusing to acknowledge them. Investors need to take responsibility for the performance of their portfolios, realize why mistakes have been made, and address these mistakes head on.

Investors who do so rather than blame everyone else for their portfolio ills will be much the better for it over the long run.

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