Give yourself credit. You want to be a champion investor. A Self-Directed Investor dedicated to riding on the coat tails of Mr. Market and steering clear of the fee sapping investing ‘middlemen’ that loiter on every verge.
But, every now and then you somehow find yourself out of sync with your Big Picture investing goals – things just aren’t going right and you can’t help wondering why.
Maybe it’s Mr Market playing out some of his volatility, unpredictability and randomness. Negative thoughts prevail and you can’t see a way out. After all, we’re all human. And we allow prior negative outcomes to dominate our thinking.
But why does it happen? Is it simply because we’ve become “busy”? Or is it because our investing goals just aren’t clear enough? Or the execution environment dealt us a perceived unfair blow? Or some politician or regulator said something negative?
Maybe our focus isn’t quite what it should be. Even the most successful people have lapses. So what can we learn from their experiences that might help us regain the necessary focus?
Let’s take a look at the highly individual, like investing, game of Golf to see what we can glean from some of its best ever players that could improve our own game (investing).
A starting quote from Nick Faldo who won 6 major championships: “Golf (investing) is not about the quality of your good shots (trades), it is about the quality of your bad shots (trades).”
And Ben Hogan who won 9 Majors: “This is a game of misses. The guy who misses the best is going to win”
Failure in life and in sports happens all the time. Failure happens on the investing journey too, in the form of loss trades and drawdown. When failure happens, you’ve got a choice. You can energise it and allow it to compound to make matters worse. And let it be demotivating, causing despair and anxiety.
Or you can look at it as a normal occurrence and have a pre-defined plan to limit the effect of your misses (loss trades and drawdown). You can also reframe the way that you think about your investing, and golfing, ‘misses’ in such a way that they are not defined as ‘failure’. More on this below…
How is your golf game, or investing game? Two bad shots (trades) in a row, combined with a big number, and you walk off the course (cease investing). Or go to the next shot (trade) and think about all the bad things that could happen?
Perhaps you can learn to embrace failure, devise a plan to minimise it and move on. My next shot (trade) may also go awry, but it shouldn’t be for the same reason. When you have bad shots (trades), what do you do?
“Of all the hazards, fear is the worst.” – Sam Snead won 7 Majors and won events over 6 decades. Now that’s what I call longevity, playing the long game.
Of all the ways to think, fear is the one that guarantees bad results. Fear is based on anticipating the worst in the future and assuming bad yet-to-happen consequences. Fear itself can’t affect the future, but it can certainly be allowed to impact present decisions and action.
If you allow it to, fear causes poor decisions, hesitation, reservation and ultimately poor performance. It stifles talent and overrides your edge.
Do you feel fearful when you are about to execute a trade? If so, what do you do to overcome it? Or is your thinking at a level that you just “pull the trigger” and execute. Cool, calm, collected and confident? Allowing your talent and edge to shine through.
“In the end it all has to be about executing golf shots (trades) with total commitment when it matters most. To do this you have to learn that playing (investing) needs to be process focussed and not score focussed.” – Pia Nilsson & Lynn Marriott, Every Shot Must Have a Purpose.
Executing is one thing. But executing “when it matters most”, when the pressure is on in the heat of the moment, is another thing altogether.
“Pressure changes everything. Some people, you squeeze ‘em, they focus. Others fold. Can you summon your talent at will?” Al Pacino in the movie Devil’s Advocate.
When under pressure in the market (or on the golf course), do you focus or fold? Which you do is simply a difference in mindset. And the mindset for the moment requires a platform of confidence, objectivity, belief, empathy, humility, gratitude and commitment.
When you’re in Focus, you’re in the zone, in the flow, inspired, alert, positively energised and your task at hand feels effortless. You overcome feelings of insecurity, uncertainty, doubt and fear. Which are all toxic thinking with respect to the execution at hand right now.
When you’re about to Fold, you’re hesitant, feel overwhelmed, panic, freeze in the moment, withdraw, avoid, magnify all the risks and give up. This is usually caused by over-analysing and over-thinking. Typically, about what can go wrong and why. Such insecure thinking allows the moment to be hijacked and derails execution. There’s a complete lack of objectivity and clarity.
So how is it, that some are confident and overcome toxic or insecure thinking and just get on with it at crunch time? They can “summon their talent at will” to let it shine through and not stifle it. And how is it that other people in the exact same situation fold, overcome by the pressure of the moment?
It’s the same cauldron of pressure. We all have the potential to go either way – everybody has the innate ability to focus rather than fold.
The truth is there’s no such thing as a riskless environment. Uncertainty prevails in all walks of life – it’s there all the time. Uncertainty is there for one reason only – we can’t control the future and hence we cannot control outcomes.
Why? Because we cannot control all the variables that play a role in outcomes. Such as weather, the environment of execution (golf course or market), other participants or spectators. We can only control our own mental, emotional and physical capabilities. That’s it. Period.
The direction we take, focus or fold, is always only a function of our state of mind in the moment of execution – our thoughts and feelings. And the secret to focussing rather than folding, is to clearly define what we do leading up to the time of execution.
This is process focus – focusing prior to execution on the things that we can control – and thinking, or visioning, positively about executing them well, regardless of any prior outcome, or score (equity curve), or single shot (trade). And completely letting go of the things that we cannot control.
What we act on and how well we execute is totally dependent on what we focus on.
That is why “playing (investing) needs to be process focussed and not score (outcome) focussed.”
Pre-trade (shot) focus will determine your thoughts, those internal voices, that will in turn determine how well you execute to consistently create a high-probability of positive outcomes. What are your internal voices just prior to execution of a trade (shot)?
“Golf is the closest game to the game we call life. You get bad breaks from good shots; you get good breaks from bad shots.” – Bobby Jones winner of 4 Majors in a calendar year, a Grand Slam.
A poor outcome from following your process is not a mistake, that is, not failure. A good outcome from not following your process is a mistake. This means that failure is not defined by a single outcome being negative – because a negative outcome can be caused by things out of your control.
Reframe failure to define it by whether you followed your pre-defined process, or not. And, at a deeper level, how well you followed the process. That is, the variables measured are only the ones over which you have control.
Ensure that you don’t compound a bad shot (trade) by not following process on the next shot (trade) to make the situation really bad. Such as continuing to not exit a trade (the bush) even though you should have according to your process’s exit rules.
It’s not the outcomes from samples of one or a few that matter, it’s the outcome over large samples of execution that matter. And that comes from having a consistent process with an edge that produces a better outcome than your ‘par’.
On the golf course your ‘par’ is 72 shots plus your golf handicap. With investing everybody has the same ‘par’ – the annualised long-term returns of the stock market’s index. And everybody has the ability to beat this ‘par’ with the right strategies and right mindset.
But with investing you aren’t given a ‘handicap’ to even things out with everybody else. Rather your ‘investing handicap (disadvantage)’ is the lack of a strategy with a positive edge and the right mindset that puts the probabilities on your side of beating ‘par’ (the market index).
Most don’t get anywhere near to the investing ‘par’. The SPIVA Scorecard proves that around 92% in the U.S. and 75% in Australia are well below ‘investing par’ by deferring to the social default of Balanced & Diversified funds. This costs them 100s of $1,000s over their investing lifetime.
So, pre-define an investing (golfing) process for YOU, ensure it has an edge in your favour to beat ‘par’ (or at least match it), then measure how well you follow the process and the positive outcomes will take care of themselves to win ‘investing majors’.
Click here to find out how you can beat ‘investing par’ – anybody can.