The Texas utility companies and the Public Utility Commission of Texas would benefit from learning UPOD: Under-Promise, Over-Deliver. It’s a key idea in the business world to lower expectations and then outperform your promise. And it will also help you with your investments.
Recently in Texas, officials told the public there would be temporary outages and rolling blackouts. Instead, there were complete blackouts and power shortages for multiple days, keeping people from making proper plans to find alternate shelter. I am no energy expert, but in the future energy companies would be wise to tell people they’ll likely be without power for a week, even if authorities only think it will be a few days. When the authorities tell people, “Oh, surprise! We are turning on the power early!” instead of griping about thwarted expectations, customers will be delighted.
Similarly, when I’ve been in an airport and am told there’s a three-hour delay, and that delay gets reduced to two hours, I’m happy. When they tell me it’s a one-hour delay and it increases to two, I’m upset. I know the reasons behind the Texas energy failure are complicated and I’m not suggesting I have energy solutions. I’m only suggesting that managing expectations is an important ingredient in responding to an energy crisis – or even a financial one.
I’ve seen confirmation of this idea in my career. The star employees in any company practice UPOD regularly. They promise their clients a two week delivery time and then deliver in one week. In fact, I know a brilliant person who couldn’t advance despite doing A+ quality work because delivery date expectations were rarely met.
Expectations also drive investment success. When people have unrealistic expectations of the stock market, it leads to impulsive and unwise decision-making. For example, our expectation should be there will be downturns every year. Why? Because there are. While the S&P 500 index has been negative in only 10 of the past 41 full calendar years, within each of those 41 years there was a decline that averaged 14%.[1] Knowing this can reduce anxiety and keep us from selling our investments at the bottom. Prepare yourself and say to yourself “The equities or stocks in my portfolio are going to decrease 50% at some point, from $1 million to $500,000.” Spell it out for yourself. If that alarms you, maybe you should have less money in equities. Despite large intra-year declines of 30% to 50% experienced in 1987, 2002, 2008, and 2020, the S&P 500 has more than tripled investor money since 2008; since 1987 it has multiplied investor money 33 times![2] I am using the S&P 500 index as a proxy for the overall market to keep things simple. At Abacus, we diversify well beyond the S&P 500 to help simmer volatility.
The other false expectation Americans have about investing is downturns can be avoided by carefully selecting companies (that can’t ever decrease) or through hedge fund promises. There is no evidence anyone can consistently avoid downturns with equities, and yet we keep believing it’s possible. That leads to a lot of anguish. It’s like believing, as I have sometimes, that I have a chance to get home on time if all the traffic lights cooperatively turn green.
UPOD – Under-Promise, Over-Deliver is great for all expectations. Tell your family you’ll be home 15 minutes later than you know you will (under-promise) and arrive early instead (over-deliver). When we recognize the long market history of delivering excellent returns, despite many negative years, we can relax and expect downturns as normal market movement. Expect significant downturns in your portfolio every year (under-promise) and you will be less likely to exit the market at the wrong time. When the market rebounds, you will benefit from Over-Deliver – achieving higher returns than people who left the market during downturns.
I invite you to take-on the practice of UPOD and watch your wallet expand and your stress ease.
References:
[1] https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/, page 18
[2] Dividends included. Source: https://dqydj.com/sp-500-return-calculator/
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