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E + R = O: A Formula for Success

Combining an enduring investment philosophy with a simple formula that helps maintain
investment discipline can increase the odds of having a positive financial experience.

An Enduring Investment Philosophy may not do the things that might be more beneficial -
evaluating and reflecting on their own responses to
Investing is a long-term endeavour. Many people will
spend decades pursuing their financial goals. But being events and taking responsibility for their decisions.
an investor can be complicated, challenging, frustrating, There are a number of academic studies that suggest
and sometimes frightening. This is why it is important to that among the characteristics that separate highly
have an investment philosophy you can stick with - one successful people from the rest of us is a focus on
that can help you stay the course when things get rough. influencing outcomes by controlling one’s reactions to
events, rather than the events themselves. This
This simple idea highlights an important question: how
can we as investors maintain discipline through bull relationship can be described in the following formula:
(rising) markets, bear (falling) markets, political strife, E + R = O (Event + Response = Outcome)
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economic instability or whatever the media puts up as Simply put, this means an outcome - either positive or
the ‘crisis of the day’ threatens their serene progress negative - is the result of how you respond to an event,
towards their achieving investment goals?
not just the result of the event itself. Of course, events
Over our lifetimes, we will all face many decisions, are important and influence outcomes, but not
prompted by events that are both within and outside our exclusively. If this were the case, everyone would have
control. Without an enduring philosophy to inform our the same outcome regardless of their response. Let’s
choices, we can potentially suffer unnecessary anxiety, think about this concept in a hypothetical investment
which may lead to poor decisions and outcomes that context. Say a major shock, such as the failure of a major
are damaging to our long-term financial well-being. financial institution, causes a market to fall (event).
When some investors don’t get the results they want,
they tend to blame things outside of their control. Some
might point a finger at the government, central banks,
markets or the economy. Unfortunately, the majority