MarketWatch: What's the secret of the Aronson Family Portfolio's success?
Aronson: It is so simple. Everybody thinks there's more to it. The gist of the portfolio includes three elements:
1. Keep costs down. That means Vanguard; it's cheap.
2. Diversify. That means index funds, which are broadly diversified in themselves, and satisfy Rule No. 1.
3. Take risks intelligently. That has two manifestations: One, don't be shy to own stuff that people construe as risky -- emerging markets, international, small cap. Whatever it may be, consider it part of your universe. And two, the single most difficult thing investors have to do is the intelligent part.
What does 'intelligent' mean? It means do the opposite of conventional wisdom. Sway against the wind. It's common sense, and it is so hard to implement. Behavioral issues are key; you have to recognize the faults we come programmed with as investors. We're driven to do the worst thing. So you buy the hot stock at the high, you sell the cold stock at the low.
