Meaningful Returns

I watched a little soccer this past weekend, and happened to see a short interview of Liverpool’s coach Jurgen Klopp just before their match against Southampton. In it he said something that very well could have come from the mouth of Charlie Munger:

People keep talking about momentum and the results leading to this match, but what is important is not to worry so much about the outcome of the match but to commit to the process which gives you the best chance for good outcomes. Nothing is guaranteed in football. The key is to keep doing the right thing. This will create your own momentum.

Often when people talk about investing they do so in response to events that have just happened, or in conjecture over events that might happen. Perhaps it’s looking at an individual stock that’s been exploding in price and wondering if you should get in on that action. Or maybe you worry about what might happen with commodities should such and such come in to power.

This is very natural. In fact it takes a great deal of will-power and self-discipline to NOT be so focused on momentum and recent outcomes and unknown future outcomes when we think about investing our money to do more in the future.

The problem is, as Klopp and Munger and others have identified, this mindset is a losing mindset. Why? Because if you’re focused on momentum and recent outcomes and unknown future outcomes, you will never stick to any strategy long enough for it to work. There is not a single strategy, in soccer or investing (or, I suspect, any arena of life) that always looks like it’s winning.

But if you stick to a good process–a process you can repeat over and over again, that makes sense to you, that is based on good evidence–well, then you give yourself the very best chance to succeed. Just make sure you define what success is ahead of time.