There's planning… and then there's LIFE
The other day I was talking to a close friend who is also in the investment world and he reminded me of a saying, “Life is what happens while you are busy planning.” We are both chronic planners, finding comfort in putting everything into its nice little box. However, as I go through life implementing my well thought out and thoroughly documented plans, I find Life often doesn’t have much respect for them. It has always had its own plan for me, which much to my surprise has usually ended up providing a much grander adventure than I had imagined for myself, though not always a smooth and comfortable ride.
This truth also applies to the investing world. I can whip up a spreadsheet and chart out all kinds of riveting scenarios, (alright, maybe only I consider them riveting) but what really matters is the real life going on despite my careful plans. When it comes to financial planning for our clients, not only are we working with people whose lives are ever-changing, but also a market that can be volatile and at least in the short-term, decidedly unpredictable. In our practice we always go back to the fundamentals of valuation and tactical allocations with a deep awareness of the unique needs of each and every client.
It is important to plan, but we must always be cognizant of changing realities. Plans are by necessity built on assumptions which might not apply to the future. For example, the ratings agencies Fitch, Moody’s and Standard and Poor’s all based their credit ratings for mortgage-backed securities on historical mortgage default rates. Unfortunately these assumptions were not applicable in the recent lending environment. Our client may have an unexpected new baby, a spouse or child may become terribly ill, a marriage can sadly fall apart or a windfall may happily appear. Things change, the past is not necessarily a good predictor of the future. We must resist being blinded by our plans to the current reality.
We seek to always be flexible enough to respond to the ever changing world, while never losing sight of the ultimate goal. My partner’s favorite analogy is of a sailboat on its way to Hawaii from the coast of California. You plot out your course and plan the day of departure. If when that day comes, there is a giant storm, you’d be wise to wait a few days to begin your travels. You know your ultimate destination is Hawaii, but along the way you’ll tack away from squalls and take advantage of a strong wind with calm seas. These opportunities may require a departure from the original plan, but you remain ultimately faithful to your true end goal and not necessarily the original path to it.
Our tactical approach to investment management allows us to wait when valuations are too high, despite the desired portfolio allocations and overweight a particular asset class when opportunity strikes.
As for me, I still have my Outlook calendar color-coded and my sock drawer would make Rainman weep with joy, but I’ve learned to enjoy the unplanned moments and surprises of life and let the occasional sock find its own resting place.
