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What's Pizza Got to do with Investments

In our daily diets, we’re used to making choices between what’s good for us and what tastes good at the time. We know we should reach for that fresh, crisp apple. But, my, doesn’t that apple pie à la mode look good? Investing is like that too. Even though we know it makes sense to stick with a healthy, well-balanced portfolio, it’s human nature to crave something tastier in the form of that latest hot stock tip or “New & Improved” Initial Public Offering.

I was reminded of this truism when Dimensional Fund Advisors’ Vice President Jim Parker published his recent article, Broccoli and Pizza Portfolio  in which he compared sound investing habits to “the financial equivalent of a broccoli and walnut salad: healthy but boring.” He cites a couple of studies (and we’re aware of several others) that demonstrate the significant under-performance experienced by those who opt for less-healthy trading habits – the equivalent of an investment junk-food diet:

A Duke University study of corporate executives published in 2010 found a dismal record of prediction among a group you might think would do well. Indeed, of 11,600 forecasts for the S&P 500 over nine years, the survey found executives’ estimates of future returns and actual outcomes were negatively correlated.[1]  (This is a technical way of saying the executives were hopeless forecasters).

Research also suggests the tendency to trade a lot and make confident forecasts about stocks has a gender bias. Whether it’s a testosterone-driven instinct among men to boast or something else, study after study shows men find it harder to accept that they are unlikely to “beat” the market.[2]

Fortunately, as Parker’s article title suggests, there’s room for both sensible and satisfying trading. Changing your human nature and maintaining a strict investment regiment is the best way to go. But if that’s too tall of an order, the next-best option is similar to the approach taken with healthy eating habits. Eat your broccoli in the form of a globally diversified, passively managed portfolio for the bulk of your family wealth. Enjoy a pepperoni pizza treat now and then by setting aside some “fun money” for investing however you please, prudence be darned.

Parker describes how investors can, “separate the investment nest egg from the play money. If someone really wants to speculate, he can be allowed to do that with the proviso that long-term retirement money be invested the boring way. This way, the investor can buy some (expensive) entertainment and accumulate a few war stories to share at his next golf game without compromising the asset allocation painstakingly designed for him and his family.”

We might add, the pizza-and-broccoli portfolio can represent a sensible diet for men and women alike. We’ve all been known to want entertaining stories for our golf buddies. At the same time, you may want to remind your friends that you also espouse a healthier routine to maintain vim and vigor for the bulk of one’s wealth.


1 Bed-David, Itzhak, John R. Graham, and Campbell R. Harvey, "Managerial Miscalibration," Duke University (2010).

2 Barber, B.M., and T. Odean, "Boys Will Be Boys: Gener, Overconfidence and Common Stock Investment," Quarterly Journal of Economics 116 (2001).