“Why Performance is a Distraction”
When we get hit with distractions such as the dysfunctional Congress, a random hurricane thousands of miles away or a Miley Cyrus video, it takes our eye off of our goals and objectives– the big picture stuff. We’re easily distracted and the news media knows it, just look at television advertising. Instead of staying the course, we let short term events take over our mind space and we begin to second guess our long-term decision making. In the financial world you frequently see the disclaimer: “Past performance is no guarantee of future results”. It’s true, (look to the bottom of this page), all the research, data and experience in the world confirms this fact. Past performance is completely unreliable, yet even larger investors such as pension funds use performance as a hiring tool. Why? Because we are all looking to set some predictive value with our assets, be it real estate, gold holdings or stocks, and to rely on performance is easy, objective and simple to measure. In addition, it feels uncomfortable not to use past performance – it’s like you’re deliberately ignoring something important. But, regardless of how you feel, its relative value is low and most certainly a distraction from what is valuable. Process is a much better predictive tool when looking at predictive value and future success because it anchors us in reality. Without it, we would be overwhelmed by the vast amounts of information (distractions) that hit us every day. Consider a recent Forbes article that featured an interview with University of Alabama’s Nick Saban, arguably one of the most successful coaches in football. He makes the case that he teaches his players not to think about winning or losing, but only to focus on processes that will lead to success. Just a week ago I went to a presentation by Mark Allen, a six-time Ironman Triathlon Champion, the last one coming when he was 37. Although he wasn’t always the best athlete, his training processes led him across the finish line ahead of the others. So the question is: What can we do to move forward successfully? First, I think it’s important to frequently reassess your goals, objectives, time frame and risk tolerance. What was true last year may have changed significantly, and by taking a second look, it may reaffirm you are on the right track or perhaps need to make some changes. Second, take some interest in your portfolios and learn more about their make-up and why the investments are in there. I always like input from my clients and I find the questions relevant and refreshing. Last, try to see above the noise and not get dragged down into the minutia of the day.
Have a great October and as always, Thank you for your business. ~ Phil The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. * Stock investing involves risk including loss of principal. “Past performance is no guarantee of future results”.