Five Keys to Improving Your Performance

I'd give myself a grade of good on this performance measure this year: I did a decent job of taking what the market gave me by overweighting the energy and gold sectors. I do wish, however, that I'd put more money in utilities and transportation stocks.

Did I keep the wind at my back at all times? Investing, to continue the sports metaphors, resembles batting in baseball. A successful batter still makes an out roughly two-thirds of the time. No player hits a home run every time up at bat. No investor makes money every trade. A successful investor strikes out at least 40% of the time, I'd guess. The difference between success and failure lies at the margin. Do 40% of your trades make money? Your portfolio is under water. Do 55% of your trades make money? Your portfolio is profitable.

With so little separating profit and loss, it makes sense to me to keep the wind at your back as much as possible. To me, that means going long in periods of the year when market history shows stocks have a tendency to go up -- from the end of October to the end of January, for example. It means being invested in specific sectors when history, again, shows that these sectors outperform -- natural gas and oil stocks in March, April and May, for example. And it means staying away from even the most attractive stocks in weak sectors.

It is, of course, possible for a stock to climb when the rest of its sector is down, but weak sector performance stacks the deck against that stock. I'd give myself a grade of good on this measure. For example, I largely stayed out of financials when interest rates were climbing, and out of technology until the end of the year.

Running the Risks

Did I minimize my risk at all levels? When you buy a stock, you take on more than one kind of risk. There's market risk -- the risk that the market as a whole will go down. There's sector risk -- the risk that all stocks in an industry will go down. And there's individual-stock risk -- the risk that a specific stock will go down even as its sector or the stock market as a whole goes up.