Why Focus on Investment Process over Investment Outcome?

Author Bio Image

At the core of our investment philosophy is our focus on process over outcome. If an investment has a good outcome we are more focused on the process that leads to the investment’s inclusion in our client’s portfolio. Why not just celebrate the good outcome? Because anyone can get lucky. Especially over the short term.

What we do know are two things:

  1. Over the long term, a good process leads to good outcomes
  2. We have more control over the process than outcomes

We all know we should direct more of our energy and attention to items we have more influence and control over. It’s obvious. But just because something is obvious doesn’t mean we do it. I know I should exercise 3-5 times per week. I know I shouldn’t try that new chicken sandwich for the 4th time. We know what the correct behavior is but we still don’t engage in it. When it comes to investing our clients’ dollars, we know we should focus our energy and attention on our process and we hold ourselves to it.

Understanding the underlying fund manager’s process is just as important as making sure we have our own disciplined process in place. Evaluating good investment performance is not just crunching performance numbers, but understanding how a portfolio manager‘s process ultimately delivers the long-term results clients seek. By focusing exclusively on short-term outcomes, investors are ultimately led astray. This focus on the short-term is understandable as it is a product of a culture focused on timing and selection. Although understandable to feel this way, your investment outcomes will likely suffer if you act this way.

We believe decision-makers should position themselves to think about investment selection with these points in mind:

  1. Recognize investing is a probabilistic exercise. With any probabilistic situation, success requires developing a disciplined process.
  2. Acknowledge that even the best process will produce bad results some of the time.
  3. The best practitioners in all probabilistic fields not only focus on process but appreciate the role time has in delivering outcomes.

Additionally, we consider these core principles and practices as foundational to our investment process:

  1. Asset Allocation - the long-term portfolio mix of stocks, bonds, and cash
  2. Diversification – an expression of humility
  3. Rebalancing - returning the portfolio to its target allocation. Part art, part science.
  4. Faith in the future - history should make optimists of us all
  5. Patience - tolerance and restraint in the face of provocation
  6. Discipline - the decision to keep following your process

For over 35 years, this focus on process has helped us provide countless successful outcomes to the families that we serve. 

Former Treasury Secretary Robert Rubin puts it nicely:

“Any individual decision can be badly thought through, and yet be successful, or exceedingly well thought through, but be unsuccessful. But over time, more thoughtful decision-making will lead to better results, and more thoughtful decision-making can be encouraged by evaluating on how well they were made rather than an outcome.”


Happy investing,