“Alice: Would you tell me, please, which way I ought to go from here?
The Cheshire Cat: That depends a good deal on where you want to get to.
Alice: I don’t much care where.
The Cheshire Cat: Then it doesn’t much matter which way you go.
Alice: …So long as I get somewhere.
The Cheshire Cat: Oh, you’re sure to do that, if only you walk long enough.”
Lewis Carroll, Alice in Wonderland
Investing is a game. It is a game unlike any other you’ve played in your life. Why? Because despite your favorite guru’s best efforts to list them, there are no rules. Sure, there is a playing field with certain boundaries. There are many different pieces and players. There are variables and constraints, some finite and vaguely predictable, others fuzzy and fraught with uncertainty. But there are no rules. In fact, no one is going to tell you when you’ve won or lost, because no one can define what it means for you to be a winner or loser.
Most people begin the game of investing by seeking out the answers to the questions, how do I invest and what do I invest in? They want to know how much to invest or save. They want to know what hot stocks to buy. They want to know who to listen to. They want to know the best retail brokerage firm. They want to know how to research companies and what to look for. They start trying to play the game without ever defining why they are playing it.
In 2009, Simon Sinek published a book, Start with Why: How Great Leaders Inspire Everyone to Take Action. The concept presented in the book is insightful and profoundly simple. In the context of the book his idea centers on human motivation and why some leaders inspire us more than others, but the illustration of the Golden Circle seems eminently applicable to the world of investing.
The Golden Circle is so elegantly simple that anyone can illustrate it using a flip chart or whiteboard. Many people start from the outside and work their way in instead of doing the opposite. Starting with Why and working their way out. Why is your purpose, your motivation. How is the process you’re going to use to get there. What is the result you’re after (in the context of business this is your product or service).
By now you’re asking yourself how this applies to the world of investing. Well, as previously mentioned, there are no rules. In order to conquer this game of uncertainty you have to make up your own. The best way to start that process is to define why you are going to invest. What is your purpose? Is it for your children’s education? Is it for retirement? Is it to leave a sizable gift to charity? Is it some combination of all of the above or other reasons? Once you’ve defined the why you can then lay out the metrics you will use to indicate whether or not you’ve won or lost. At the end of the day these metrics, and your progress towards the Why, will dictate the Hows and Whats of investing.
When you start with the why, you can begin to take control of the game. You can lay out your own rules. You can play the way that makes the most sense in the context of your goals rather than amble through the process not knowing where you’re headed. If you don’t much care where you’re going then it doesn’t much matter which way you go.