The Circles Of Concern And Control

In his excellent book 7 Habits of highly effective people, Stephen Covey describes two circles of our activities. He calls them Circles of Concern and Circle of Control. He uses them to describe how we waste our time in non-consequential things (like sex life of celebrities or the weather or political leaders etc) and do not place sufficient emphasis on things that do really matter (like what you need, the kind of work you do, the kind of focus and attention to details in your work and what skills you learn etc.). He offers sufficient examples of how time gets wasted in activities that are largely resident in the circle of concern (non-consequential) leaving very little time for items that are in the circle of control (the important).

Analysts and traders are similar lots. For example, describing the fall in the market yesterday one of the chaps on TV opined that people are taking their cues from what is likely to happen in the upcoming Karnataka elections and how that may ultimately pan out for the parties in the run up to the Lok Sabha election of 2019 and whether or not Modi shall return as PM. This was one of the silliest arguments I have heard. Recall an earlier article entitled Match the Following that I wrote sometime ago? It was about how one could randomly pick different buzz words from three different columns and string them together to make it sound like you really have an opinion on what’s going on! The election based answer seemed just like one of those match-the-following type answers. Clearly, this man definitely does not have the pulse of the market.

People are inherently smart and what’s more, they also think they are smart when they are trading. But place them in a group and they get reduced to the level of a moron. Read Forecasting Financial Markets for a fantastic treatise on crowd psychology. With the prices of oil moving higher consistently, with the currency getting weaker every day, with the Dollar appreciating everyday, with Fed likely to raise interest rates in the US, with EM currencies taking a bashing, with corporate earnings turning in a mixed bag over the last week or two, with an election around the corner and maximum noise emanating from it, there is little wonder that people have many, many excuses to sell their positions and feel that they are doing the right thing. It doesn’t require any great analysis or correlation work to be done to guess the reason behind the market decline. But if you just say that people are selling because they are scared of making losses, then it wont be sufficient on TV. You have to coat your answers with some sugar to make them look and taste good!

Thus you have people asking about or speaking about a vast number of things over which they have little control and which is really not consequential to them. Who wins in Karnataka is not going to determine long term trends of the market. In three days the market moves on to something else. Once this election is over, we are on to Rajasthan and then MP and then some  other state. Elections are just noise. You can possibly influence the election result even remotely only if you are one of the voters in Karnataka. For all others it is a waste of time.

Then they worry about why PC Jewellers is so damn volatile. Everyone MUST know the reason! Why? Will you not be able to sleep at night if you didn’t know? Especially since you don’t even have a single long or short position in that stock. But, endless questions are asked to every expert on TV about why PCJ is moving the way it is. And poor chaps, they actually try to answer intelligently even though they haven’t the faintest clue! What a waste of time.

Then there are all those hours spent on analysing why certain stocks went down when they ought to have gone up or vice versa. This is another waste of time- because the stock has already done what it has done. You are the one still stuck in its past!

All the above are examples of Circles of Concern. No doubt, Karnataka elections do appear to be an important element for the market. As does volatility of stocks like PC Jeweller. But is it really relevant to your activity in the market. Instead, what if you had paid greater attention to what was indeed happening with some stocks from your portfolio? Did you need to prune any or perhaps you needed to use the dip to add some more? Did you check what opportunities are being proferred by this decline in the market? These are Circles of Control things and they are the ones that create the profits. Or prevent losses.

In his fantastic book  Rolf Dobelli wrote:

News is to the mind what sugar is to the body. News is easy to digest. The media feeds us small bites of trivial matter, tidbits that don’t really concern our lives and don’t require thinking. That’s why we experience almost no saturation. Unlike reading books and long magazine articles (which require thinking), we can swallow limitless quantities of news flashes, which are bright-coloured candies for the mind.

We have to be careful about what sort of news we feed our minds. We are surrounded by information vending items- Television, Internet, WhatsApp, Twitter, etc etc – most of them vending few or limited line versions of the news with surface level information. Your life isn’t better off for reading them and you’re rarely better informed because of them. Mindlessly digesting whatever information comes to you is to live in the Circles of Concern where you seldom think deeply enough. What you need is to learn with purpose, take action on the things that are important to you, and seek out high quality information as a way to spark creativity — not as an excuse to consume even more.

There is a lot of information that fills our daily lives, clogs our minds, and prevents us from creating, building, sharing, and experiencing more important things. Most of the information you come across in your daily life — the news stories, the social media updates, the television shows — isn’t going to change the choices you make. Instead of sitting around and consuming whatever is readily available, challenge yourself to make more conscious choices about what you consume and how you consume it.

Get out of the circles of concern. Get into the Circles of Control. Your life as a trader will improve.