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Focus on what you can Control

In investing, focus is important.  We have to divide the world into what we can and can’t control.

Will North Korea (snicker) or Iran (no snicker) get nuclear arms?  I can’t control that, an I am not sure what I would do if I knew what would happen.

Will the Fed move to inflate goods prices, as opposed to their quantitative easing which mostly affects asset prices?  Or will they look to protect nominal values of debt, and deflate?

There are many things that I don’t know; if I did know the future with certainty, I am sure that most other people would know it at at least a lesser level of certainty.

So focus on what you can control, rather than what you can’t.

  1. You can control your own behavior.  You can’t control the behavior of others, whether it is those who invest alongside you, or manager behavior, or that of clients who invest more and less at the wrong times.  Optimal behavior might mean buying things out-of-favor after the fury of selling has gone cold.
  2. If you are a manager, you can guide, but not control client expectations.  You can educate them on your willingness to take risk, but you can’t control their emotions.
  3. As a manager, you can tell investors the mandate toward which you are managing — and then you must manage within it, because your investors expect it.
  4. You must match the liquidity of investments to the need for liquidity.  Value investors must stress patience.  Hot money investors must keep things liquid.  The same applies to time horizon.
  5. Market conditions may be depressed or ecstatic.  You can’t control movements in the mood of the market, but you can adjust your position so that you can benefit from likely future change, if valuation measures are extreme.

This is one reason why I try to limit the number of decisions that I make, for myself and clients, while trying to make better decisions for all of us.

In general, I think better investment decision-making stems from diversification where you don’t know more than the market, and concentration where you do know better.


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4 Responses to Focus on what you can Control

  1. [...] Investors, focus on what you can control.  (Aleph Blog) [...]

  2. [...] David Merkel, too – focus on the things that you can control, playa.  (AlephBlog) [...]

  3. [...] the less of it you react to, the better off you probably are. My friend David Merkel talks about making as few decisions as possible, thus limiting the amount of bad or forced ones. This is the kind of advice that sounds so simple [...]


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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