Investment Philosophy: Discipline
By Christian Gannon on April 8, 2025
“Discipline is the bridge between goals and accomplishment.” -Jim Rohn
“Discipline equals freedom.” -Jocko Willink, Ret. Navy SEAL Team Leader
We live in a world rife with information and opinions. Generic financial advice and investment strategies are touted broadly as the solution for all individuals, and it is hard to know whether the information you are receiving is good or not. This confusion can turn to capitulation, which in turn can lead to results far below expectations. Morningstar’s “Mind the Gap” study from 2024 estimates that the average investor underperformed the market return across various categories by 1.1% annualized for the 10-year period ending 2023. It attributes much of this return to poor timing, based on cash flow activity of investors. Index fund investors weren’t much better, as DALBAR estimates that for the 30-year period from 1994-2023, the average investor returned ~8%, while the S&P 500 delivered over 10%. While a 2% gap may sound small, it represents a difference of ~$800,000 in ending wealth, on an initial investment of $100,000.
Source: https://www.ifa.com/articles/understanding-investor-behavior-portfolio-performance as of March 23, 2025
Seemingly small decisions can have significant effects over the long-term. Compounding is a very powerful tool that can work for or against you. This is where discipline meets the previous concepts that we’ve discussed: planning, humility, and patience. Charlie Munger, Warren Buffett’s longtime business partner, said, “The first rule of compounding: Never interrupt it unnecessarily”. We study the markets, building and understanding expectations for various investment strategies. We match those strategies to your desired risk profile and planning needs. We monitor to ensure that the portfolio is delivering within the expected range of outcomes. Most importantly, we focus on the specific goal of each strategy relative to its expectations and purpose in the portfolio.
Comparison is the beginning of many investors’ behavioral mistakes. We’ve all probably heard some version of, “There is always somebody with more…” money, intelligence, power, any number of things. The reality is that there is always a “best performing” asset in the market… and it’s always changing. We can begin to feel left behind, even when our portfolio is performing better than we may have expected when we started our journey. Discipline is critical, establishing a strategy that should get us from Point A to Point B and maintaining course, even when the winds are blowing strong and the waves smack against our ship. When other ships are charting a different course and look like they may have found quicker waters, we have to remind ourselves what we are trying to accomplish. We need to remember that we are on our own journey and it may look different than somebody else’s. Dr. Prem Jagyasi is quoted as saying, “The only person you should compete with is the person you were yesterday.”
I love the quote, “Discipline equals freedom.” It’s counterintuitive to many, however, it reminds us that the little steps along the way are what free us up to get to what we truly want to accomplish. One of my favorite quotes is from Seth Alexander, the CEO of MIT’s endowment. In his 15-year letter, he reflected on his tenure and this quote has had a great deal of influence on the way that I personally think about investing:
We should note that we generally do not consider missing out on successful investments as a mistake. Usually, someone else is better positioned to understand and access opportunities than we are and our lack of involvement is a sign of discipline, not lack of initiative. In many cases, missed opportunities are simply not our money to make.
As of 3/2022. https://mitimco.org/wp-content/uploads/2022/04/MITIMCo-15-Year-Letter.pdf
What does discipline look like in practice?
- Establish a strategy: This seems simple, but establishing a strategy is an integral first step. Due diligence and research are critical in gaining understanding of the dynamics of asset classes and individual strategies. This can be a significant undertaking for individual investors. Chart a path, establish your goals, and develop a plan that will bridge the gap to getting there.
- Benchmark appropriately: Market indices do not care about your goals. Investment strategies are tools to be used, but some may not be appropriate depending on each unique circumstance. While a given index may be the right benchmark for a particular strategy, there are also good reasons why a fund or manager may be outperforming or underperforming in the current environment. Also, there are good reasons why an investor may not want to hold a specific index. A targeted rate of return established by a thorough planning process is probably a more appropriate benchmark for most individuals.
- Remain steadfast: Noise can be the enemy. Remember what you are trying to personally accomplish. Neighbors, coworkers, friends, and family are on a different journey. Is the strategy employed working within the expected realm of how you would expect? Are you up when you’d expect to be up and vice versa? Is your strategy outperforming or underperforming at the time you’d expect it to? Some opportunities are not our money to make.
