“Plans are worthless, but planning is everything.” -Dwight D. Eisenhower
As well as being a decorated soldier and an effective president, Dwight D. Eisenhower was a pretty shrewd thinker whose wisdom can be applied in many different contexts. This seemingly paradoxical statement by the 34th U.S. president strikes at the core of what successful value investing is about. Let me explain why.
What does this mean?
In a nutshell, what this means is that while you need to spend a lot of time thinking about what you are going to do in an emergency and how you are going to do it, when the time to act comes, you should not let your plans constrain you. In other words, it is the act of preparation rather than the preparations themselves that are useful.
In a military context, which is what Eisenhower was referring to, this means thinking through every single possible outcome and contingency of an operation, but not expecting any given one to materialize. In a value investing context, this means having a solid grasp of what it means for something to be selling at or below intrinsic value, but not looking for any specific thing in particular.
Why people fail to seize their opportunity
This is all quite theoretical, so let’s make it less abstract. Bull markets tend to last a lot longer than selloffs, so the window for opportunity tends to be quite small if you are a bargain-hunter. As a value investor, much of the time you are doing nothing. This is what Warren Buffett (Trades, Portfolio) famously refers to as “waiting for the right pitch” - like a hitter letting balls sail by in anticipation of one landing in their sweet spot. Of course, unlike baseball, there are no strikes in investing, so theoretically, you have unlimited time to find the ideal investment.
What would your investing plan look like? You might say: “I have $50,000 in cash right now, but nothing looks particularly cheap. I can see that the market is currently in the 80th percentile, historically speaking, so I don’t think that buying stocks today is wise. However, if valuations come down, I will aim to buy at points X, Y and Z.” Furthermore, you might plan out the various scenarios that could lead to such a selloff to give yourself a little more context.
Once the market finally turns, however, it isn’t that useful to look at what you thought would happen last week. Chances are, you were probably wrong anyway. Failure to jettison your plans, as Eisenhower would have wanted, can lead you into some dangerous places. For instance, one reason why so few investors manage to deploy capital during times of panic is a belief that “the market will go lower.” If you become married to a particular vision of the future, then you will probably miss your opportunity when reality does not conform to your expectations.
Read more here:
- Christopher Browne: Everyone Likes to Buy Cheap, Except in the Stock Market
- Warren Buffett: If an Accountant Does Not Record Stock Options as an Expense, Do They Exist?
- Why Stock Market Returns Are, on Average, Higher at the End of the Year
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