(750 words and approximate reading time 3.5 minutes)
Which is more important?
How many times have you stopped and considered the real meaning of words used every day? More importantly, how often do you challenge your own notion of that meaning by looking it up? Recently, I heard a friend and father I respect tell his son that discipline is more important than motivation. He said, “Motivation can come and go, but discipline will take you where you must go, even when you are not feeling very motivated”. It was compelling enough to write down, and consider not only the meaning of the words but also the implications. It is great advice, and I thought I would share what I found. Read on.
Better Late Than Never
It would have been ideal to receive this advice a long time ago. I have always considered myself a motivated individual, and am not very satisfied unless I am doing something (constantly). Right now, I am watching the news and writing a blog on a Saturday morning. Yep, that might be called motivated. However, I had the idea for the blog last Tuesday, and was disciplined enough to write the idea down but not motivated to write it until today. So perhaps one could argue that it takes both to accomplish our goals. Hard to debate either way.
Culturally, motivation is a more attractive word than discipline, and often used interchangeably in the noun form, because discipline in the verb form is what we all received when we did not follow a rule. So think about that – we may have been motivated to drop an M-80 in that toilet bowl, but were severely disciplined when the toilet had to be replaced (sharing for a friend). There are literally thousands of instances every day when we follow the rules or guidelines to get things done, often with or without a burst of motivation.
As simple examples, the discipline of a ‘to do list’ should keep us on point during the day, even when we are not feeling particularly motivated. If we are disciplined enough to exercise even on days when we feel tired, the cumulative effect over time is significant. This last point is where the father’s advice collides with Blueprint's business.
The Importance of Discipline on Investing
We write a lot about human behavior and the impact of that behavior on our lives. We focus specifically on investment portfolios and the relationship between behavior and the achievement of our financial goals. Often some of the most counterproductive motivations are instigated by market conditions that, despite being part of a normal market cycle, are irresistible emotionally. Who out there has had FOMO when the market is roaring higher and we feel we are missing out? Who has not acted on their fear when the news media is screaming ‘the end is near’ after a few volatile down days or weeks in the market?
This is when discipline is more important than motivation, and why my friend’s advice to his son makes a real difference over time. Discipline will allow us to resist those (negative) motivations, and stay the course, adjusting with the rules we have established and not due to emotion-driven reactions.
Much like exercise, the discipline to stay the course in investing has a noticeable cumulative effect over time. The chart above illustrates the compounding of investment returns over 10 years, comparing the discipline of following the rules of trend following to the more common method of buy and hold. As you can see, following the rules makes a difference, even without any human intervention. Imagine inserting some human behavior in this mixture by buying high or selling low – not good – as studies by Dalbar consistently show. Raise your hand if this strikes close to home.
Motivation v. Discipline
Our research has shown that from an investment perspective, discipline wins the day. Our investment strategies follow strict rules and execute without hesitation or human motivation. We refer to this as behaviorally intelligent investing, for a reason. If the investor can have the emotional intelligence to avoid less rational behaviors, the results will improve dramatically over time.
The advice was sound.
Motivation comes and goes, but discipline will allow us to stay the course.
For more thoughts on behaviorally intelligent investing and ways to reduce the impact of human behavior on investment decisions visit www.blueprintip.com. Or contact one of our founding partners at 1.800.765.6936.