What John Roberts' stock portfolio reveals about him.

Commentary about business and finance.
July 26 2005 5:32 PM

How To Invest Like a Supreme Court Justice

What John Roberts' portfolio reveals about his character.

(Continued from Page 1)

Also in keeping with Roberts' clean-cut, churchgoing image, his investments did not include companies in vice industries (gaming, drinking, smoking, etc.). If Roberts ascribes to the Peter Lynch-school of amateur investing—buy what you know—one might thereby infer that he is not a chain-smoking boozer who is forever sneaking off to Atlantic City. One might also conclude that he will instinctively frown on rulings that make life easier for gaming, smoking, and drinking companies (Wall Street take note!).

Roberts' stock portfolio is a conflict-of-interest nightmare. If Roberts continues to own all these stocks, he may have to recuse himself from many cases before the Supreme Court. (While in private practice in 2003, Roberts represented 19 states in their antitrust suit against Microsoft. Yet his 2003 financial disclosure form shows Roberts holding $100,000 to $250,000 worth of Microsoft stock.)

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On the whole, Roberts' investment choices suggest that his financial character is much like his legal one. In investing, he tends to accept prevailing conventional wisdom—which, in the case of the financial markets, often changes and is often wrong—and to apply it with above-average competence.

For example, to his credit, Roberts does not appear to have made the usual boneheaded mistakes of the late 1990s—assuming that "diversified" meant owning the stocks of eight fiber-optic companies instead of one, for example, or betting his entire 401(k) on one stock. He also does not seem unduly vulnerable to the alternating influences of fear and greed: He did not quit the market in a panic in mid-2003 or bet the farm on Internet stocks in mid-1999 (or, if he did, he jettisoned the evidence). Instead, he maintained a diversified portfolio and, largely, held onto it through thick and thin.

Still, Roberts' investment decisions do not show evidence of the rigorous, summa cum laude analytical skill that he is said to evince on the legal side. Either his own choices—or those of his investment advisers—suffer from common-but-flawed thinking. Roberts' stock portfolio, for example, is actually too diversified: He holds so many positions that the benefits of diversification are likely lost to trading and administration costs (monitoring the well-being of 40-odd stocks is more time-consuming than monitoring the well-being of 10), and the portfolio is so representative of the market that it might as well be the market. A wise investment adviser would tell Roberts to sell all his stocks and buy one low-cost index fund instead.

As for his fund and stock selection, Roberts does show some susceptibility to peer pressure—aka, what the majority thinks is smart at any given time. Positions in Cisco, Time Warner, Dell, Lucent, and PMC Sierra suggest that Roberts did not maintain iconoclastic clearheadedness through the 1990s but instead bought into the "do-it-yourself" stock-picking craze. Similarly, in 2003, when the mass of investors shied away from individual equities, he sold several stocks (at a bad time) and replaced them with funds. Roberts also owns a lot of high-cost, actively managed mutual funds, which suggests blind acceptance of the common-but-erroneous belief that professional investors usually beat the market (they don't). As with the individual stock holdings, Roberts would be well-advised to sell most of his high-cost active funds and add money to his few, low-cost index funds.

Bottom line? Roberts the investor is smart and conservative but, like most of us, prone to following the herd.

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