DISCIPLINE MAKES THE DIFFERENCE

If you’re our client, you’ve probably seen some version of this graphic. It’s meant to show the relationship between various facets of portfolio management, with the most important one in the center.

When talk about investing, we talk first about why markets behave the way they do. Simply put, it’s because we, as people, are emotional and biased.

The first time I heard this, I was insulted because I fancy myself a fairly logical person. That’s likely true for a lot of you on your individual level.

But markets often rise and fall with the force of collective human emotion. The way to overcome emotional and other biases is through discipline, focusing on things you can control and creating systems, process, and rules that can be repeated. This way, you take the emotions out of decisions that need to be made in tumultuous markets.

Watch this short video by Dimensional Fund Advisors. It demonstrates the importance of discipline by showing recent rebounds in value tilted returns. The implication being that, if you react hastily and emotionally to market conditions, you are more likely to damage your overall success.

Also, I like Mr. O’Reilly’s accent.