Overview – Knowing How to Adjust on the Fly
You’ve probably encountered the following scenario at least once in your life: you create an elaborate, well-thought-out plan, and pat yourself on the back for such meticulous work. Then, something unexpected happens, rendering your plan moot, and you are now forced to re-adjust on the spot.
Almost everyone plans in one way or another, and understandably so: plans help us understand where exactly to allocate our time and energy towards, otherwise we risk aimlessly wandering about.
However, as experience has taught us all, no matter how well thought out or complex the plan is, all it takes is a bit of disruption or one major event to turn it upside down.
Knowing how to effectively plan is an important skill, but people easily forget that it’s just as important to know how to pivot at a moment’s notice. The argument can be made that adaptability is just as important as knowing how to chart our next moves.
Most investors have all sorts of plans and strategies in mind, but countless external variables can ruin them in the blink of an eye. However, by learning to make use of adaptability in investing, investors can reduce the likelihood of being caught off guard when their plans abruptly change.
Planning Is and Will Continue to Be, Indispensable
As we will discuss more in-depth later, adaptability in investing is required because an investor’s plans are imperfect and very prone to change. So, does this planning is an exercise in futility? Not at all.
In the words of former U.S. president and General Dwight D. Eisenhower: “Plans are worthless, but planning is everything“.
Planning is crucial to any endeavour, both big and small, because it gives us a very clear idea of where to focus our time and energy, what parameters/limitations we are subject to, and what potential risks we may encounter.
No major endeavour can be completed if those involved have no idea what exactly they’re supposed to do and don’t know what’s expected of them – winging it can only take you so far. Nobody “accidentally” fumbles their way to success without the slightest clue of what they’re doing.
Plans may be imperfect, and may not remain unchanged from start to finish, but that doesn’t mean they’re not helpful. Following an imperfect plan but having a good idea of where to go is much better than having no plan at all.
Similarly, investors can’t possibly hope to achieve any meaningful, sustainable success in their careers if they don’t have any idea where to direct their limited time, energy, and capital.
An investor’s success isn’t something they just happen to come across one day by happenstance: planning serves a key role in helping investors achieve their goals in the most timely and efficient manner possible.
Adaptability in Investing as a Solution to the Shortcomings of Planning
Despite the importance of planning, it’s no secret that the plans we come up with are far from perfect. How many plans have you come up with in the past that didn’t unfold as expected?
One of the reasons why our plans sometimes come up short is because of the Planning Fallacy.
Put simply, people are usually bad at planning because they usually underestimate how much time they truly need to complete a task. In addition, people also tend to believe that their plans will be executed under ideal conditions, and as a result, underestimate the impact of external factors on their plans.
Unfortunately, investors aren’t spared from falling victim to this fallacy. Some investors underestimate how much time is needed to complete certain tasks, and others are overly optimistic about how their plans will unfold.
To address the shortcomings inherent in planning, one solution is to have backup plans that can readily be deployed. This is something we’ve discussed in-depth before; having backup investment plans/strategies in place is indeed prudent, and at times will be needed, particularly when investors find themselves dramatically off-course.
But what happens if these backup investment plans/strategies also don’t work out as intended; create more? No investor could hope to plan for every single contingency they might encounter, and even if they could that would be a major time drain to come up with all those backups.
Instead of trying to predict every possible outcome, investors are much better off knowing how to adapt; that is, to take new information/developments into account and adjust their present course of action accordingly. Not only can adaptability help investors save time, but it can also spare them from the mental fatigue of constantly needing to implement new plans/strategies.
By making effective use of adaptability in investing, investors can theoretically respond to any changes they encounter without much stress or fanfare. Knowing how to pivot based on new developments is much easier than trying to predict and plan for every single future outcome.
Adaptability in investing can range from very simple applications, such as foregoing an investment prospect based on recent bad news, to highly complex, such as moving certain assets overseas due to unfavourable political developments.
Regardless of how investors choose to apply it, the point of adaptability is to help them keep working toward their goals without having to start from scratch every time something unexpected happens.
Adaptability and Planning Go Hand-in-Hand
Knowing how to adapt to unexpected changes is important, but adaptability doesn’t mean there’s no need to have a clear sense of direction.
Planning, as we discussed earlier, has its limitations, and one way to address those limitations is by learning to make use of adaptability. However, adaptability works best when it’s used as a supplement to planning – it does not serve as a replacement for it.
Adaptability and planning can be thought of as two sides of the same coin: one of these elements cannot be used to its full potential without the other.
Investors who rigidly stick to their plans without knowing how to adapt give themselves no room to quickly adjust course when circumstances change. Conversely, investors who know how to adapt without any sort of plan in mind are simply working towards nothing.
Investors will need to know how to strike a balance between creating a thorough plan while also giving themselves enough room to re-adjust when the need arises.
Adaptability in Investing is a Skill, so It Must Be Developed
It’s very easy to say “Adapt when circumstances change”, but how exactly will an investor know what to do in the face of these changes? What would classify as doing too much or too little, and how can investors hope to know the difference?
Knowing how to adapt as an investor is a skill, and like any other skill, it must constantly be improved and refined for it to have the most impact possible.
As dreadful as they are, market crashes are bound to happen from time to time. These times of upheaval usually throw a wrench in the plans/strategies that an investor is currently following, and because of this, they will need to re-adjust course quickly.
However, the way an experienced investor chooses to adapt when dealing with market chaos will most likely differ from what a novice investor does. Why? Chances are the experienced investor’s ability to adapt has been honed due to dealing with similar situations in the past, as well as having studied how other investors act in these situations.
Every investor has the ability to adapt, but some will be able to do it more efficiently and effectively than others. Adaptability is a highly malleable skill.
So, just because an investor currently struggles to adapt to sudden changes in their plans/strategies doesn’t mean they’ll stay this way forever. Given enough time and more experience, knowing how to effectively adapt in all sorts of situations will become much easier to do.
On the contrary, the opposite can also happen: if an investor doesn’t take the time to hone their ability to adapt, they may one day find themselves unable to effectively respond in times of sudden, unexpected change.
Wrapping Up
Investors have all sorts of plans/strategies they follow, but even the most robust plans are susceptible to sudden, unexpected changes. When faced with these turn of events, what is an investor’s next move?
Learning to effectively make use of adaptability in investing can help investors keep moving towards their goal(s) with the least disruption possible. Of course, using backup plans/strategies is also a valid thing to do, but knowing how to adapt can help investors avoid the mental fatigue and time drain of constantly following new plans every time circumstances take an unexpected turn.
Knowing how to adapt is important, yes, but it serves as a supplement to planning, not a replacement for it. Having one but not the other will prove to be ineffective.
Adaptability is a skill, and like any other skill, takes time and experience to fully master. On the flip side, investors who neglect to develop this skill may find themselves unable to effectively act during critical moments.
