As former Indian cricketer and World Cup winner MS Dhoni put it: “I often talk about how the process is more important than the result; the result is just a by-product of the process.”

The mantra ‘trust the process’ was popularised by the NBA basketball team the Philadelphia 76ers a decade ago as the team bounced back from two seasons of record losses and made it into the playoffs. The expression came to represent a disciplined approach focused on the long term.

The aim is to set realistic goals and concentrate on things that an athlete or team can reasonably hope to control, while down-weighting near-term setbacks and factors that cannot be managed, such as the opponent’s form, the weather, or a poor refereeing call. The idea is that by following a disciplined and rigorous formula – in this case, a solid training and nutrition programme, alongside mental preparation – success is far more likely to follow.

The same principles can be applied in the savings and investment game, where it is equally as important to start with clearly defined goals. For most people, the aim is simply to have enough money to afford shorter-term hobbies and comforts while also ensuring long-term financial security, including in retirement.

As is the case with a sports team, it’s worth carving out the factors that are within one’s control and can be incorporated into a process. Regrettably, however, many people expend a great deal of emotional energy focusing on things they have no influence over, such as currency volatility, political events, and interest rate changes.

By concentrating on what is controllable, an investor can execute their plan and withstand short-term setbacks – just as a team can keep the bigger picture in mind after losing a game in an otherwise successful season.

So, what are these controllable factors?

In most cases, asset allocation is the main priority. The right balance of growth assets (equity and property) and defensive assets (bonds and cash) lays the foundation for long-term success.

Be warned, however, that the environment can be noisy and unsettling in the short term. Volatility can tempt investors into taking unnecessary action – switching into cash, for instance – instead of riding out a market cycle. If the right building blocks are in place, this is almost always a mistake. When comparing the choppiness of asset class returns over the short term, say over one year, against long-term trends and outcomes, it is clear that deviating from the process when encountering hurdles is not a good idea.

The table below shows that selecting asset classes from one year to the next is extremely difficult as returns can be volatile.

Source: Morningstar. All returns are calendar year returns in ZAR. SA Property = FTSE/JSE SAPY TR Index, SA Equity = FTSE/JSE All Share TR Index, SA Bonds = FTSE/JSE ALBI TR Index, SA cash = STFI Comp TR Index, Global Property = S&P Global Property 40 GR Index, Global Equity = MSCI World GR Index, Global Bonds = FTSE G7 GR Index. Past performance is not indicative of future performance.

While at 10X, we do believe that there is merit in being cognisant of valuations in the mid-term view (3-5 years). However, over 10 years or more, the importance of sticking to a process shine through, as the table below illustrates. Over extended periods, riskier asset classes almost certainly outperform defensive assets and reward investors for ignoring the noise and sticking to the game plan. This is the equivalent of judging a team’s performance based on an entire season, rather than on one game. 

Source: Morningstar. All returns are 10 Years annualised until the corresponding year end year returns in ZAR. SA Property = FTSE/JSE SAPY TR Index, SA Equity = FTSE/JSE All Share TR Index, SA Bonds = FTSE/JSE ALBI TR Index, SA Index, Global Property = S&P Global Property 40 GR Index, Global Equity = MSCI World GR Index, Global Bonds = FTSE G7 GR Index. Past performance is not indicative of future cash = STFI Comp TR performance.

In addition to asset allocation, diversification and cost management are controllable factors that should form part of any long-term investment strategy.

Diversification

This is often described as “the only free lunch in investing”. By holding uncorrelated assets and shares, we can expect similar returns but at a lower level of risk.

Cost management 

A structural drag on an investor’s returns, cost is one of the main drivers of long-term performance. By keeping costs in check, we boost returns.

In the investment game – as is the case in sports – consistency is key. Since results compound and success breeds success, an early start and a strong foundation are crucial.

As you set your investment goals, make sure that you settle on a reliable process that you can bank on for the long term. 10X Investments recognises this and places a strong emphasis on creating a reliable investment process. Remember that you are looking to win the season, rather than simply hitting the next ball out the park.