Toothpicks And GlueSubmitted by Cameron Woods Portfolio Management on May 16th, 2017
May 16th, 2017
By: David Cameron
First year mechanical engineering students are often given this project. The project is simple. Here’s a box of toothpicks. Here’s a container of Elmers glue. Use the toothpicks and the glue to create a bridge that will carry the maximum amount of weight. One thing students often discover early on is that a randomly built bridge doesn't work very well. That bridge might be beautiful to look at but if it’s not based on the wisdom of engineering, on data, on testing, on what we understand about forces and tensions it also doesn't work very well. The thing about engineering is that we can do it on purpose. The thing about engineering is that it works.
We engineer our portfolios and the lesson is exactly the same. It’s tempting to hack our way through creating a portfolio that works. It’s tempting to get confused about market cap and P/E ratios and price to book and economic indicators and dividends and politics and the price of oil and gold and, and, and… It’s tempting to think that we know the future and we believe how dispassionate and logical we will be in the face of adversity. But you know the truth. Ask yourself: Do you want to be right or do you want to make money?
Engineer your success. It works.