In 1948, the McDonald brothers, Richard and Maurice, briefly halted their barbecue restaurant to simplify their operations. When they reviewed their sales, they realized that the vast majority of their revenue came from a few items (largely hamburgers). Now they had a daring plan: why not concentrate just on the best-seller items? They reduced their food menu from 25 items to only 9. This decision proved to be a turning point for McDonald’s. By limiting the items they provide, McDonald’s was able to improve food quality, reduce expenses, and serve more people with greater efficiency. The rest is history, as McDonald’s is now the world’s largest fast food restaurant business, serving over 69 million people every day across 100 countries.
However, it wasn’t only the McDonald brothers. When Apple’s Steve Jobs returned in 1997, he discontinued more than 90% of its products, retaining only ten. He concentrated on a few items where Apple might be the best. In 2006, Nike created (also now!) some of the world’s top items, which were desired by many. But they also produced a lot of junk. In 2006, Steve Jobs advised Nike’s CEO Mark Parker to use the very same strategy he used with Apple: “Just get rid of the crummy products and concentrate on the good stuff”.
The act of subtracting may be highly useful in developing straightforward yet efficient solutions. When we continue to buy and diversify across many equity funds, we unknowingly acquire hundreds of equities, resulting in overlap, portfolio disorder, and hence ineffective approaches. An easy option would be to set an upper limit of equities funds in your portfolio, such as 5 to 6 funds. Make a ‘ignore list’ of categories that you believe are redundant or too complex for your portfolio.
Your savings percentage, equity exposure, rebalancing, diversification, and time frame are ultimately the most important factors influencing your investing outcomes. You may create basic customizable rules around them. For example, a savings goal of 30% of your monthly income, a portfolio exposure to stocks of 70% (depending on your own unique risk profile), rebalancing your portfolio if the variance surpasses 10%, diversifying among different types of assets, investing for at least 7 years, and so on.
When the equities market falls, most of us panic. Instead of attempting to make judgments in the midst of a market downturn, you may avoid these decisions by preparing beforehand and pre-loading your investing choices. The pre-loaded planned strategy might be as basic as: What needs to be done if the market drops 10%, 20%, 30%, 40%, or 50%? SIPs (Systematic Investment Plans) are an excellent method to automate your monthly investments. It eliminates sentiments and guarantees that you invest every month with consistency. It also ensures that rupee-cost averaging works in your favour when the markets recover after a significant decline.
For humans, there is an innate preference for new things over the old. This need for newness manifests itself as an urge to add new mutual funds, resulting in excessive congestion in your portfolio. Once you’ve created the appropriate portfolio and strategy, make ‘do nothing’ as your default action most of the time. Maintain a high threshold for portfolio actions. Reduce the frequency with which you watch the news and your portfolio. The constant flow of bad news makes it difficult not to respond, and the emotional anguish of transitory dips intensifies as you watch news more frequently. Portfolio reviews every six to twelve months should suffice.
