“If you want to live a happy life, tie it to a goal, not to people or things.”
– Albert Einstein
Ever work really hard at something only to realize it has been a fruitless exercise in futility? If you are like most people, the answer is yes because almost everyone has been on a fool’s errand at one point or another in their lives. I personally have engaged in countless activities that have done nothing to bring me closer to my respective goal, or worse, have actually moved me in the opposite direction.
When viewed with the knowledge of hindsight, our actions seem absurd and perhaps even comic. A fool’s errand becomes tragic, however, when repeated again and again by a perpetrator unconscious of his error. Then we are like Sisyphus rolling the boulder up the hill, devoting precious time and energy and in the end achieving nothing.
I know I have sermonized before about the importance of setting goals, but goals are the equivalent of an inner compass that guides us through life. Without them, we ramble aimlessly; with them, our efforts are directed toward achieving a particular vision. Articulating your goals is like finding true north. Once found, you must stay on course, but you always know in which direction you are headed.
From the moment we awaken in the morning, our minds are consumed by an endless number of relatively minor choices. No one decision is all that important, so it is easy for us to act without much forethought. The difficulty is that these little decisions add up, and cumulatively they come to define our quality of life.
Thus our precise location on the map of life is influenced by all of the small choices we have ever made. While no one begins with the same set of advantages or disadvantages, examining how actions affect our present circumstances forces us to take responsibility for the future. Having goals helps us make better choices when confronted with the thousands of otherwise insignificant decisions of everyday life.
“If you do not change the direction in which you are going, you will end up where you are headed.” – Confucious
At face value, most people accept the importance of goal-setting, and yet nearly all of the free world, including the “brightest minds” on Wall Street, has failed to apply this fundamental wisdom to investing. For so long, we have mistakenly substituted “winning” for reaching goals by relying on performance benchmarks as the sole barometer of success. We analyze the strength of a portfolio by the relative manner in which it has outperformed a given index, rather than looking at whether we are on track to achieve our long-term goals.
Measuring your performance against something arbitrary like the S&P 500 index is like determining whether or not you are fat by finding the average weight of everyone living on your block. If you weigh less than the average, you may feel better about yourself comparatively, but this measure provides no information about your true health and well-being. You would never set a fitness goal to be less fat than the average person in your neighborhood, so why do we consider beating an index to be an effective method for measuring investments?
Here’s one more example in case you are not yet convinced. As the last vestiges of winter linger, now is the time many of us begin to dream about our summer vacations. At its most basic level, planning a vacation is a lot like goal-setting. Imagine your family has gathered for dinner and decided that this is the year you will finally make the trek over to Disney World. After months of anticipation, when the vacation has finally arrived, how do you measure its success? Will you be satisfied seeing smiles on the faces of your loved ones or will you only be happy if your family enjoyed itself more than every other visitor at the park?
By the same token, merely trying to beat an index is and always will be the fool’s errand of investing. Worse yet, it is a key indication that your investment strategy lacks direction. Treating life like a race that must be won is a recipe for suffering and disappointment. Instead try measuring your success in life by how well you are achieving a defined vision. You may find you have the ability to exceed your greatest expectations.