How to be a better investor

How to be a better investor 

Becoming a better investor often comes down to a single, powerful discipline: focusing on what genuinely matters and what you can actually control. Sometimes the clearest way to grasp a simple but important idea is to see it illustrated, and few people do that better than Carl Richards, a former financial adviser who now helps other advisers manage their clients' behaviour.

In this video, Carl Richards shares one of his best-known sketches, the one that helps investors focus on what really matters. The idea came from a conversation with his own mother, who confided that she was deeply worried about the dollar collapsing. It struck him that while the concern felt real, it was something entirely outside her control. That exchange led him to the intersection of two circles: things that matter, and things you can control. If something doesn't matter, why worry about it? And if you can't control it, why worry about it, other than to plan around it? The place to focus your energy is where those two circles overlap.

You'll learn why this principle is so useful, not just in investing but in life generally, saving you a great deal of time and unnecessary worry. When it comes to your wealth, Carl Richards points out something reassuring: if you list all the things that truly matter, you'll find you have control over most of them, your asset allocation, your own behaviour, when you retire, and much more. The one significant thing that matters but lies beyond your control is your investment return, in other words, the markets. Yet that is exactly where most investors spend the bulk of their time and worry.

The takeaway: flip the balance. Without ignoring the markets entirely, spend less time fretting over what you can't control and far more on the things that both matter and are within your power. That simple shift in focus is one of the most effective ways to become a better, calmer and more successful investor.

Chapters / Key points

• Why focusing on what matters and what you can control makes you a better investor
• Carl Richards and the power of a simple sketch
• The conversation with his mother that sparked the idea
• The two circles: what matters and what you can control
• Why the overlap is where you should focus your energy
• Why this principle helps in life, not just investing
• The many things you actually can control (asset allocation, behaviour, retirement timing)
• Why your return is the one thing that matters but can't be controlled
• Why you should flip where you spend your time and worry

Transcript

How to be a better investor

Robin Powell: Sometimes the best way to explain a simple but important concept is to illustrate it. And no one understands that better than Carl Richards. A former financial adviser, Carl now works with other advisers on managing their clients' behaviour.

Carl is well known for his sketches, and one of his most popular is one that helps clients to focus on what really matters. It was a conversation with his mother that gave him the idea.

Carl Richards: She sits down and says, "Oh, nothing," and I said, "No, really, what's wrong?" She said, "Oh, the dollar. I'm just so worried about the dollar." At this point, it was like 12 years into my career and I had not had anyone really ever ask me about the dollar. So I remember I was like, "Well, tell me more about that, mom." And she's like, "Oh, it could collapse." My mum, as far as I'm concerned, controls the universe, but she has no control over what happens to the dollar. The argument would not matter if the dollar fell. Well, yeah, if the dollar collapsed it would matter, but we started talking about that intersection of these two circles. Things that matter and things that you can control, because if it does not matter, why are you worried about it? And if you cannot control it, why are you worried about it? Other than to plan around it. But if we can get the intersection of things that both matter and things we can control, then that is really where we should focus, because that will make a difference.

Robin Powell: Focusing on this intersection of what matters and what you can control is useful in life generally, and not just when it comes to investing. It can save you a great deal of time and unnecessary worry.

Carl Richards: The good news with investing, and particularly if you think more about wealth management in general, like more broadly than just investing, is if you were to make a list of all the things that actually mattered, most of the things we have control over. Asset allocation, our behaviour, when we retire. There is a whole long list of things we have control over.

There is one noticeable thing that matters a lot that we have no control over, and that's our return. In other words, the markets. We spend 80% of our time talking and worrying about one thing, and I am just suggesting that we should maybe flip that a little bit. It does not mean ignore that thing, I am just saying, why don't we spend a little bit more time talking about the things that we do have control over that also matter?

Robin Powell: Thank you to Carl Richards. You'll find plenty more helpful sketches like that one on his website, BehaviorGap.com.