We Can’t Direct the Wind, but We Can Adjust Our Sails

Anthony Isola wrote this article on his blog recently. He points out that we often become our own worst enemies by focusing on financial events we have no control over. We become bitter and irrational over imaginary market enemies that “are out to get us.” This spirals into unproductive behavior that only compounds our sorry situation.

Understanding what we can and cannot control is a secret to happiness in both life and investing. Getting upset at things like the weather, or a negative stock market surprise, is understandable; but, it is wasted emotion, nonetheless. Having a realistic approach of what is within our grasp will give us more clarity about the world. This will also provide us a much greater chance of becoming successful investors. Looking for solutions from an insider’s perspective, rather than clawing at outward straws, is a far more effective strategy for all of us.

·        We cannot control what asset class will outperform in any given year. We can control diversifying our portfolios by owning all of them to match our time horizons and risk tolerance levels.

·        We cannot control who is elected president. We can control not letting politics play any part in our investment decisions.

·        We cannot control the fact that markets do not have positive returns every year. We can control our savings rate, tax management and investment costs to help smooth the ride.

·        We cannot control what hysterical pundits scream about in the financial media. We can control our ability to shut off the T.V. and do something more productive with our time.

·        We cannot control the fact that too many so-called “financial advisors” are nothing more than glorified used car salesmen pitching the product of the month. We can control choosing a real financial advisor; a fee-only fiduciary who is legally bound to look out for our best interests.

·        We cannot control the fact that markets tend to lose 40-50% of their value periodically. We can control getting through this unpleasantness by understanding this, too, shall pass and the reason why we invest in stocks is they give us our best chance to protect our future purchasing power over the long term.

·        We cannot control the fact that too many of us pick investments on the basis of a good story rather than data. We can resist this urge by creating a portfolio based on evidence, and sticking with it through both thick and thin.

These suggestions are much easier said than done, due to our imperfections as human beings. We need to understand that we can’t control many of the events that affect our finances but we can control how we react to them. In the words of Ben Franklin: “While we may not be able to control all that happens to us, we can control what happens inside us.” Keep these words of wisdom in mind the next time the stock market delivers a crash.