Control or Chaos - Get Smart!
Controllable Risks
One principle of The Moneyball Method is to control what you can control. That may seem obvious, but in a world of artificial complexity manufactured by government trained economists from government funded schools, it is not easy.
Naturally, that infiltrates public policy think tanks, regulatory agencies and investment firm strategy committees. Think of that the next time you read an economic outlook or market forecast report, “cautiously optimistic, continued volatility, near-term uncertainty, headwinds and tailwinds, secular trend intact and potential policy errors.” Why all the disclaimers? Because it is impossible to predict or control the future of human innovation or the damage of government force.
And without skin in the game, the State’s forecasters and apologists may be wise to adopt the catchphrases of Agent 86 from the 1960s hit comedy Get Smart: “Sorry about that, Chief. Missed it by that much!” But for those of us who control what we can control: “it is of little use to objective investors who understand that the market’s price mechanism discounts all of that.” All of that being the information behind the forecasts and predictions.
Some of the things we cannot control are the risks that are a natural to the investing landscape: valuation, competitive, financial, currency, credit, compliance, political, headline, commodity, counterparty, macroeconomic, price inflation, and interest rate risk. This is not an exhaustive list, but you get the picture.
And about those: “Economic and market forecasters and strategists are consumed by all of them; they control none of them and they can predict some of them about half the time.” Now you begin to see what all of the complexity is about, but it is artificial and the anxiety is avoidable: “All known information about them, including analyst research opinions, is baked into the market price of all exchange-listed securities.”
In essence, to believe that markets are inefficient is to sanction State chaos over an otherwise elegant system. And to believe in efficient markets is to believe in values, production and trade. But as an investor, only the latter will free your mind for the things you can control.
With regard to risk management, we can now ignore all of the risks listed above because they are easily managed with one concept - market risk exposure. And the others within your control are overspending, underperformance, concentration, assumptions, rebalancing and illiquidity risk. To learn more, please click this link.
https://www.amazon.com/Moneyball-Method-Middle-Class-Manifesto-Objective/dp/1696009111/