Focusing On What Matters, What You Can Control
The end of the year is a great time to reflect upon the prior 12 months; what we did well, where we can improve, and what we'll do differently in the year ahead for better outcomes.
In 2022, some very smart, well intended people, made some very bad predictions:
- Tom Lee of Fundstrat predicted bitcoin could go as high as $200K by year end 2022 (after saying it would hit $100K by the end of 2021). Tom is a very smart, reasoned guy I respect, but even with his well-articulated reasoning, he was way off on this one.
- Josh Brown stated early in the year that the Fed would raise interest rates at most 50 or 75 basis points (0.50% - 0.75%), scoffing at other commentators who were predicting a more aggressive Fed increasing rates in the 3% - 4% range (even many of them underestimated how hawkish the Fed would be). As with Tom Lee, Josh Brown is a very smart, thoughtful guy who is good at what he does. But he was miles off in this prediction he stated with such conviction.
- Morgan Stanley's Head of Applied Equity Team stated it should be an "OK year for the market overall" and specifically called out growth and technology stocks as "trading at very reasonable valuations" (they subsequently cratered 20% - 50% or more).
- Those whom I respect a bit less than the list above, the bevy of analysts (Wedbush, William Blair, Needham) who downgraded Carvana from Buy or Overweight to Hold in December only after the stock had crashed to under $10 from over $200 earlier in the year. These after the fact changes of heart are more common than you would think on Wall Street. Very few analysts suggest to Hold/Sell after a stock runs up - it is usually the opposite; they tell you to sell only after the damage is done.
I realize it is easy to play 20-20 hindsight back seat driver with those who put their predictions out there for the world to see. And in many cases, they had very sound advice for those paying attention. My point is not to pick out those who got things so terribly wrong, but to emphasize the notion that predicting near-term events is all but impossible even for highly intelligent, well intended professionals.
So, if you should not be in the prediction business - nor make important money decisions based on TV commentators who know nothing about your particular situation - then what should you focus on in the year ahead? The answer: things over which you have control, a few of them being the following:
- Your Health (what you eat/drink, your stress levels, staying active, etc.). As Gandhi said, "It is health that is real wealth and not pieces of silver and gold." Yes, make sure you have your financial house in order either through your own efforts or working with a professional Financial Advisor, but don't forget to invest in your physical, mental, and spiritual wellbeing - all of which are priceless.
- Proper Asset Allocation. One of the best risk mitagators to the never predictable short-term price movements of stocks is making sure you have the optimal allocation into various asset classes (cash for money needed in the near term, bonds for money you won’t need for a couple years, and stocks/real estate, etc. for funds you won't be spending for 3-5+ years). This will allow you to sleep at night and avoid making financial mistakes by selling stocks at just the wrong time.
- Your Spending. People often forget there are two sides to the cash flow equation, and the expense component is the one over which we have the most control (versus our income). Just like you can't 'out workout' a bad diet, it is very difficult to 'out earn' bad spending habits. You have control over what you put in your body, and you largely control how you spend your money, so instead of dedicating time trying to predict the unpredictable, take a few minutes to see where you can cut the fat - literally and figuratively speaking.
I'm a big believer that it is never too late to improve in any area of life. Doing so requires reflection and awareness. If you find yourself repeating the same mistakes year after year - financial or otherwise - take some time to have an honest chat with yourself. Write down things you spend a lot of time or mental energy on over which you have little to no control (e.g., day to day stock market swings) and those over which you have a lot of control (and which can materially impact your life) like some of the ideas listed above. Even if you shift just some of your energy from the former to the latter, you will likely have better outcomes and be a happier, healthier (and richer), person along the way.
Here is to a healthy, peaceful, and prosperous 2023!