That is a truism to life and investing: you need to focus on things that are important and the things that you can control. This is just as hard to remember and achieve in real life – as it is investing. However, simplicity is the ultimate sophistication.
As the Olympics have just ended, I am reminded of a story by told by sportscaster Charlie Jones. He discussed as a announcer at the 1996 Olympics in Atlanta that he was assigned to announce the rowing, canoeing and kayaking events. He discussed that as he prepared to interview some of the team members that he decided to focus his questions on weather conditions and the resulting difficult water conditions and resulting choppy seas. However, to an athlete, they all responded to these questions with the same phrase: “That’s outside my boat.”
After hearing the same answer again and again, Jones realized that these Olympic athletes had remarkable focus. In their attempt to win an Olympic medal, he wrote:
They were interested only in what they could control…and that was what was going on inside their boat.
Everything else was beyond their control and not worth the expense of mental energy that would distract them from their ultimate goal. There are plenty of distractions and concerns outside our own boats, but to win the race we must stay focused on what’s inside our boats.
This life lesson is true with investing as well. One can not control the daily movements of the markets, but we all can control several items “inside our boat”. Two things that one can control in investing are the following: determining what you are trying to achieve, and how you react to market movements. These are the things in everyone’s “boat” and most other things are distractions that can not help you “win” the race against outliving your money, paying for their children’s college tuition and whatever other goals one may have.
To stay focused on the important investment goals, you need to know what they are. It may sound simple, but having a meaningful conversation of what you are trying to achieve is essential. This way all of your assets – time, energy as well as savings – can be invested more wisely. Once your real financial goals are identified, a plan can be developed to help you focus what is going on “inside your boat”. Knowing the target, you can determine how much you will need to save monthly to reach your goals as well as what is the rate of return that your investments need to provide.
The major distraction for most people outside the boat is the market “noise”. The endless “news” and the associated daily predictions from experts on how this news will affect market movements often leads investors to lose the focus of what they can control. What they can control is the the asset allocation of their investments or how they should divide their money in order to reach their goals. The portfolio should – if done properly – be developed using long term historic understanding of, not just market performance, but as importantly – market volatility. Understanding and expecting these movements should eliminate the surprise and help one focus on the reason that your created this plan. The reason being helping you reach your goals. So work with an financial planner who will keep your focus “inside the boat” so you too can capture gold.