God grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.
- The Serenity Prayer
So often we waste time worrying and stressing over things we can’t control.
It’s insanely easy to do.
Picture yourself in an UBER (I almost said taxi cab…weird), stuck in traffic, on the way to the airport, and your flight leaves in an hour. How are you feeling? A little stressed?
But let’s actually think about this.
Will stressing out, biting your nails to the cuticle, actually help? Will you get to the airport faster if you worry more?
We all know the answer intuitively, but we still worry. Why is that? No one likes worrying and we know it’s unproductive yet we still do it anyway.
I am endlessly fascinated with the disconnect between knowledge and action so let’s explore this.
Just like the serenity prayer alludes, focusing on and accepting what we can control is the only productive solution to any problem. But I believe the last sentence, knowing the difference between what we can and cannot control, is what trips us up.
For instance, I think we equate worrying with caring. If we are in that UBER with a friend and he is cracking jokes and not worrying, we might think he is a) crazy or b) doesn’t care too much about missing a flight.
So in that sense, by worrying, we are actually giving ourselves a demented sort of peace by displaying our care.
Let’s say you need to find a job. You apply to ten jobs every day and then worry the rest of the day, waiting to hear back. If you weren’t worrying, then you wouldn’t be caring right? We worry because it means something…
But at the same time, we know worrying is unhealthy. It puts strain on us, leading some people to have mental breakdowns and other anxiety attacks. As stated, no one likes to worry, but is it a necessary evil?
Up to this point, we’ve really only focused on worrying. This is because it reveals whether we know the difference between what we can and cannot control. In other words, if you only focus on what you can control, worry subsides. If you focus too much on what you can’t control, worry increases.
The Worry Fulcrum
So the question becomes: how do we tell the difference between the things we can and cannot control?
It comes down to process versus outcome. Worry obsesses over the outcome. Discipline, work ethic, and planning are process-based characteristics.
Let’s go back to the ‘job-application’ example. The outcome you hope for is getting a job. The process for that outcome is applying, networking, bolstering your resume, building skills, researching, preparing, etc. If we focus on the process, then we don’t have to worry so much about the outcome.
Of course, we are going to care about the outcome, but we only have a certain amount of control over it. Just like the Serenity Prayer says, “help me accept the things I cannot change.”
We confuse the process with the outcome. They become intertwined because, in a sense, they are, but in another sense, they should be separate. In other terms, a good process may lead to a good outcome but sometimes it doesn’t and the outcome isn’t what you hoped for. And then you think it was due to a bad process and you begin a degrading cycle of worry. And obsession.
So when you’re trying to discern what to focus on and what to accept, look through the filter of process and outcome. Don’t get them mixed up even though it’s easy.
The outcome is the final result.
The process is all the things that go into that.
In a phrase, focus on the process and accept the outcome. Then you won’t have to worry. If you’ve done the best you could in your process, you don’t need to fret about the outcome because you can’t control it at the end of the day. Of course, if you keep failing again and again, your process might need improvement. But, even then, focus overwhelmingly on the process.
What Does This Have to do with Investing?
Investing is a game where outcomes are flaunted and “only the results matter.” A numbers-don’t-lie sort of thing. But this idea of focusing on the process and not the outcome speaks to the heart of investing.
It’s so easy to worry about our investment returns. Darn it, we lost to the market this week, good thing we beat it last week! (Talk about a case of chronic short-termism).
That’s the idea behind obsessing over outcomes. On the other hand, focusing on the process looks like deep research, trying to limit emotional biases, and the constant drive to improve your skills. But like the serenity prayer hints at, it can be hard to tell the difference between process and outcome. So I’ve made an elementary diagram.
As I mentioned, it’s easy to get these mixed up and it can be dangerous as an investor, especially the “Good Luck” box. You may think you have a good process if you get a good outcome but it could be luck. The problem is this leads to pride and then your bad process eventually comes back to haunt you. Similarly, the “Bad Luck” box can lead you to change a perfectly good process because you got a bad outcome.
So What’s the Solution?
For one, time is a good indicator. If you have great results over a long time period, you probably have a good process. Likewise, on the other end of the spectrum, bad outcomes for a long time probably mean a bad process.
But if you’re unsure about whether your process is good or bad, one helpful tip is to try new things. Let’s say you are having some really poor performance in your portfolio. You think you have a great process, you do the research, you think hard, but for some reason things just aren’t working out. Go ahead and try something different. Start small but try out another strategy or dig deeper through your current one. If you continue doing the same thing while expecting different results, that is the definition of insanity. Try something new so you can see if your current process is broken. Great investors continually test their assumptions and conclusions because if you aren’t learning, you’ll soon be losing. And you have to try new things to learn.
To End
Above all, humility is crucial. As soon as you think you are the best and your process is bulletproof, you are venturing into dangerous territory. We need to continually be updating our process, throwing out the bad and implementing the good.
If we’re doing this, then the outcomes will take care of themselves. And we need not worry. Instead, we'll just focus on improving our process.
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