It occurred to me this morning that most of the decisions we make as investors are determined by our answers to three questions:
1) What are my economic needs, intentions and resources?
2) What does the opportunity set of investments look like?
3) What will be the future course of circumstance and market sentiment?
At our firm, we focus on the first two questions, and on their intersection. If we can help each of our client families to reconcile their needs with the available returns, we’ve made a good start. If we make good selections from the available investment opportunities, better still.
We tend not to spend much time on forecasting future events, or on trying to determine where sentiment will carry the market in the near term. These are questions that seldom have reliable answers, so we think they are mostly a distraction from prudent investment practice. In terms of strategy, we seek out long-term advantages. Right now, we are waiting for another episode where short-term market dislocation creates long-term opportunity.
That said, I do think starting with these three questions makes sense. I’m curious whether any of my readers find this formulation helpful.