The investment protocols followed by large, institutional investors, while seemingly cumbersome, can serve as a good example for individual investors of how to avoid making emotionally-based buy/sell decisions. This according to a recent article in The Wall Street Journal.
“Encouraging clients to take a more measured and patient approach to managing their assets—rotating out of a concentrated position deliberately rather than selling out of it wholesale, for example—can help them avoid the kinds of mistakes that ultimately cost them money,” the article says.
The article outlines the following earmarks of institutional investors that could prove advantageous to individual asset managers:
- Establishing a formal investment policy with clients that outlines criteria and a review process for making trades to help them stick to long-term goals;
- Focusing on correlation and diversification—the article cites instances where individual investors might add international equities to their portfolio, for example, to enhance diversity, but points out that those assets could be “more correlated than they appear.”
- Looking for investment opportunities “off the beaten path,” such as derivatives, managed futures and real estate. While the article points out that some of these may not be appropriate for individual investors, “it’s worth considering alternative vehicles—like closed-end funds, for example—that have more attractive risk/return profiles.”