Performance reviews: though staples in our workplaces, few like these annual, sometimes bi-annual evaluations. They are meant to provide positive feedback and constructive criticisms to ultimately help with our careers, so why are these evaluations so cringe-worthy?
By nature, the emphasis is on the results you created in a previous time period. For someone in business this might be sales. For a teacher it could be test scores. For a coach it’s most likely wins and losses. For an investor it’s performance.
What’s so bad about focusing on outcomes?
Two problems arise when we focus on outcomes:
1. They’re out of our control.
We cannot control sales, test scores, wins, or the stock market. Trying to control an uncontrollable only brings stress and frustration.
2. It encourages unintended behaviors.
For example, what if high school teachers are incentivized by graduation rates? The goal is noble—encouraging students to graduate. However, the unintended behavior is to simply “push kids across the finish line” since that’s what they are judged by.
The same can be said about any other occupation. If the focus is on the results, our actions can change to simply appease the performance goal set before us.
Should we be concerned about outcomes? Yes, but as we have seen, focusing on outcomes is detrimental to our success. Instead, I believe we will enjoy more success if we are hyper-focused on our process.
In baseball, the Oakland Athletics famously employ a meticulous process coined Moneyball to build winning teams despite having one of the lowest payrolls in the league.
Oakland’s General Manager, Billy Beane, wants to win the World Series just like everyone else. But he calls playoff success “luck” and views the results of its Wild Card, best-of-five and best-of-seven series a crapshoot.
He views his job as building a team that will make the playoffs after a grueling 162-game season. How does he do this without the luxury of spending money on the best free agents? By being hyper-focused on his team-building process.
The results? Since 2000, the Athletics have won seven AL West Division titles and four Wild Card berths.
Focus on the process.
Unfortunately, it’s easy to be outcome-focused with your investments, too. Why? Investment performance is easy to see, straightforward and engages our emotions.
Furthermore, performance reviews are ingrained in our society! We are trained to think reacting to performance is how successful investors should act.
I’m here to tell you most of what happens in investing is out of your control.
What events have caused the stock market to move in recent years?
- A global pandemic
- Federal Reserve monetary policy
- Tax policy
- Consumer spending
How many of these were under your control?
The solution is to focus on what we can control—our own investment process.
Your process gets you the outcome.
What does it mean to have long-term investment success? Having more good outcomes than bad.
If we aren’t in control of the outcomes, how can we ensure we have more good outcomes than bad ones?
It begins and ends with having a good investment process.
An investment process is a methodology. It’s objective, repeatable and guides every investment decision. It answers the question, “How should I invest my hard-earned money?”
- When the market crashes, an outcome-focused investor reacts in an effort to “do something.”
- When the market is soaring, an outcome-focused investor gets greedy and buys hot stocks, attributing performance to investing acumen.
- A process-focused investor knows that short-term performance is a distraction to long-term wealth building.
- A process-focused investor enjoys his success but keeps the process intact, even when the temptation is to seek even higher returns.
I believe the only way to be a successful investor is to focus on the process. It allows us to remain on track when an outcome is less than ideal. By focusing on our process, we are giving ourselves a better chance at capturing more good outcomes than bad ones over time.
Do you need help with your investment process? Stewardship is here. Schedule a time with an investment advisor today.