Sophisticated portfolio strategy not enough, execution is where the rubber meets the road

economictimes.indiatimes.com:

“A theory, however elegant and seemingly foolproof is only as good as its implementation. The real world isn't a well-behaved mathematical model; it's chaotic, unpredictable. The smallest oversight in execution can make the greatest of strategies crumble." In a famous speech, Nobel Prize-winning mathematician John Nash stressed the importance of a robust strategy supported by a solid execution plan.

This statement was prompted by his poker losses, which he blamed on human behaviour rather than the strategy he had devised for the game. Similarly, in the world of investing, having a sound portfolio strategy is not enough. Investors focus and spend too much time on selection issues – which fund to buy and which stock to sell.

Execution gaps combined with dysfunctional investor behaviours nearly always lead to poor outcomes and may derail a well-conceived investment plan. This could be attributed to two key factors - Investors overlook opportunity costs. Opportunity cost is the loss of value between when an investor is advised to buy or sell and when the transaction is completed.

What was good investment on 1 August may be average on 15 September and possibly bad in November. Opportunity costs add up over months and years, leaving your portfolio underperforming. Most investors think hazily (often due to inexperience or hubris), invest conventionally, forget that effective investing requires being counterintuitive (buy what you hate & sell what you love), and act in reaction to short-term market events/trends that will quickly reverse.

A carefully architected decision-making framework can solve both issues. The traditional model of advice-seeking has been non-discretionary. An advisory firm or a distributor provides