The Four Most Important Things in Investing

Dan Mikulskis asks us on his blog realreturn.blog what really matters most in the volatile, uncertain and ambiguous environment of investing. Is it Better earnings models? More research? Using skilled managers? Access to deals? These things can and do matter, and fortunes have sure been made promoting these ideas. But for the majority of end investors, it’s often more fundamental (and basic) wisdom that has a bigger impact. There aren’t any secrets, some of the best advice is simple, but not easy.

Direct Attention: The world is noisy and our attention easily distracted to the wrong things, this can be bad. There’s always another macro forecast, a piece of economic data, a political event or an under-performing manager to take our attention. Most of this doesn’t matter in the big picture. Be intentional.

Measure what Matters: Returns, risk, and progress toward your objectives. Don’t get drawn into all the rest of the weeds too often. Be wary of measures turning into targets that aren’t fully aligned with your outcomes.

Accept Responsibility: The decisions you take will have an important impact on outcomes, but it takes a lot of work to rid decision of bias. Avoid the table-pounding guru with sweeping powers. Reward dissent, be accountable, divide & conquer, be truth-seeking, deploy diversity well. Warren Buffet says “The people who know the edge of their own competency are safe, those who don’t, aren’t”

Prepare for Uncertainty: The future will not evolve in nice straight lines as much as we might wish it to. You will lose money at some point and you will be unsure of what to do. Prepare in advance for these moments and manage your own future expectations. Pre-commit. Set yourself up to react confidently to both good and bad news. Peter Bernstein reminds us that the most important thing about risk is the ability to make decisions under uncertainty.