The Case for Calm: You Control What Matters

Investors often fret over external factors; the next presidential tweet, Federal Reserve policies, or wars erupting in distant lands. The instinct to worry about uncontrollable events seems hardwired. Yet, when it comes to financial success, these externalities pale in significance compared to the one factor investors can truly influence: themselves.

Financial markets are uncertain and influenced by countless unpredictable factors. Investors frequently obsess over predicting outcomes — trying to foresee market crashes, interest rate shifts, or global political tensions. But Benjamin Graham captured the true essence of investment risk: "The investor's chief problem — and even his worst enemy — is likely to be himself."

Extensive research underscores Graham’s wisdom. Studies consistently highlight that investor behavior, not external events, is the main determinant of investment returns. For instance, the well-known DALBAR study reveals a striking "behavior gap." Over a 30-year span ending in 2013, the S&P 500 yielded an annual total return of 11.1%, yet the average investor captured only 3.69% per year. Most of this underperformance stemmed from poor timing decisions — investors chasing performance, panicking in downturns, and lacking patience when it matters most.¹

The research backs up Ben’s wisdom. The latest data from DALBAR reveal that both stock and bond investors underperformed benchmark indexes (5.5 percentage points for equity investors, 2.6 percentage points for fixed-income investors).¹ People lost ground to market averages due to poor timing decisions, including FOMO buying, panic selling, and lacking patience when it matters most. DALBAR’s numbers wobble each year, but whatever the true figures, it’s clear that investors leave valuable returns on the table, all thanks to, well, themselves.

 

Central to this challenge is the psychological concept of locus of control — the degree to which individuals feel they control the events affecting their lives. Those with an internal locus of control believe their decisions significantly shape outcomes, while those with an external locus of control attribute outcomes to external forces like luck or fate. Psychological studies consistently demonstrate that people with an internal locus of control experience greater resilience, confidence, and success. They’re more proactive, disciplined, and adaptive during stressful periods.

Investors with an internal locus of control recognize their behavior directly influences their financial outcomes. They maintain discipline, focus on long-term goals, and avoid emotional decisions triggered by market volatility. By contrast, those dominated by an external locus of control often succumb to anxiety, panic-selling during market downturns, or recklessly chasing fleeting opportunities.

One illuminating historical analogy comes from the biblical story of Naaman, a powerful leader struck with leprosy. Seeking a cure, he approaches the prophet Elisha, expecting an elaborate ritual. Instead, he's instructed to simply wash seven times in the muddy River Jordan. Offended by the simplicity, Naaman initially refuses, failing to recognize the profound wisdom hidden within straightforward advice. It’s only when he humbles himself and follows this simple guidance that he's healed.

Investors today face their own "River Jordan Problem." Many dismiss the simple, practical behaviors essential for financial success — maintaining discipline, consistently investing, avoiding panic — precisely because they seem too ordinary or mundane. Instead, they become distracted by external drama or complex investment strategies promising easy riches. Yet, true wealth-building resides in the humility to master oneself rather than to predict markets.

A vivid example is found in the tale of the highest-performing mutual fund of the 2000s — CGM Focus. While the fund itself delivered an impressive annualized return of 18.2%, the average investor in the fund astonishingly lost money.² Why? Because investors flocked in after strong performance and fled at downturns, consistently mistiming their decisions. This underscores the critical lesson: even superior investment choices are meaningless without disciplined, patient behavior.

So how do investors reclaim a sense of empowerment and cultivate an internal locus of control?

Here are three practical strategies:

1. Create and stick to a written investment plan. Clearly outline your investment goals, risk tolerance, and long-term strategy. Reviewing this plan during stressful times can reinforce your internal locus of control, reminding you of your disciplined approach rather than emotional reactions.
2. Manage your “media diet”. Limit exposure to sensational financial news and market commentary, which often magnifies external uncertainties and fuels anxiety. Instead, focus on your long-term objectives and fundamental investment principles.
3. Practice structured self-reflection. Regularly review your investment decisions in a structured way. Rather than merely observing gains or losses, evaluate your emotional state and decision-making process. Understanding your psychological tendencies helps strengthen your internal locus of control, fostering resilience during market volatility

Ultimately, controlling your financial future isn't about predicting every external event. It's about mastering yourself. Recognize and embrace this simple, profound truth: you already control what matters most.