How to Build a Portfolio One Brick at a Time

How to Build a Portfolio One Asset at a Time

Beginner

My single favorite toy as a child really wasn’t a single toy.  It was my giant bucket of LEGO accumulated over many years.  The beauty of LEGO is that the combinations are absolutely limitless and the things you can build with them are constrained only by your imagination.  Well… and access to all the right pieces.

You see, when building a spaceship, race car, or castle it’s sometimes not good enough to have a big bucket of parts.  You need to have the right parts.  The right color for the walls, the right size to fit in a tight space, or the right shape to make a respectable wheel or wing.  Many hours were spent browsing the toy aisle not for the final product pictured on the box, but for just the right part in the kit to add to my collection.  Without the right building blocks, the best designs just aren’t the same.

For a while now Portfolio Charts has been focused on the LEGO kits — the portfolios that you can build for yourself and the calculators to help you do it.  But I’ve known for a while that it’s been missing an important ingredient.  Today I’m happy to unveil brand new section to the site dedicated to the portfolio building blocks themselves — Assets.

How Averages Lie

Beginner

Perhaps the perennial top rated roller coaster in the United States is Millennium Force at Cedar Point in Sandusky, Ohio.  With a max drop of 300ft at 80 degrees and a top speed of 93mph, reviews are predictably glowing and full of adrenaline.

 

“Best ride in the world!! It’s so fun, you feel like you’re flying.”

“GREATEST RIDE IN THE WORLD. ENOUGH SAID.”

“The best ride there! So fast, so extreme, amazing drop. No matter how long the line is make sure you go on the ride.”

 

Just as interesting to me is a stat you won’t find.  At a length of 6595 ft and a duration of 2:20  from start to finish, the average speed of the coaster is a pedestrian 32mph and would be considered safe in your home neighborhood.  If some robotic fan only judged amusement park rides by average speed, the drive there would blow it out of the water.  And a grandmother picturing a smooth leisurely ride would be in for a very rude awakening.  Clearly, averages don’t tell the whole story.

So why is it that when discussing investing people love to reduce portfolio performance down to a single long-term average?  Just like discussing roller coasters only in terms of averages, that masks the entire experience of the ride!