As the familiar rumble of the turbodiesel burbled in front of the office, I knew Charlie was stopping by for his regular visit.
Charlie has scratched out a living doing every job imaginable in the oilfield over the last 50 plus years. He has leathery skin and an attitude that is stubborn and worn.
With a cup of coffee in his hand, the seventy-five-year-old started firing questions. “What is the price of oil going to do?”
I told him I didn’t know and I’m not sure many people do know. I reminded him he was supposed to be the oil patch expert. He grinned.
Charlie then asked, “What is the Federal Reserve going to do with interest rates?”
Again, I replied, “I don’t know.”
The pace of questioning sped up as Charlie inquired, “What is the Chinese economy going to do?”
I told him I didn’t know.
Sarcastically, the roughneck said, “I thought you were the guy with all of the answers. Why do I pay you if you don’t know anything?”
Charlie was sounding like my wife who is convinced I know nothing and if I do know something, it is unimportant.
I explained to Charlie that he does not pay us to know all things, but rather specific things and to have the discipline to know which ones require attention.
He squinted his eyes and said, “Like what?”
In the world of investing there are things that are important and unimportant and things that are known and unknown.
He impatiently rolled his eyes and sarcastically said, “Thank you Aristotle. When did you become a philosopher?”
I assured Charlie that none of the great thinkers would call upon us anytime soon. However, it brought up a good point in terms of how to focus ones efforts in managing money and life.
The job of a good investor is to break down data into these four categories. This is especially important with the constant information overload we are all exposed to.
For instance, I know the sun will set tomorrow. However, in terms of assessing investments, it is unimportant. Furthermore, most of the “news” the popular media produces each day is not important.
With things that are knowable, but unimportant, it is best not to put much emphasis on them.
Conversely, a tsunami hitting the Gulf Coast would be quite important. However, the timing of such an event is virtually unknowable. With unknowable, but significant, events you recognize they can happen. As such you position yourself so unforeseen events don’t wipe you out.
Charlie listened and asked how this might affect him.
I told him the latest out of China, the Federal Reserve or the oil patch fall in the category of unknowable. Additionally, when it comes to valuing any business this data probably falls in the category of unimportant also.
However, specifically to Charlie the price of oil is very important to his industry. He agreed.
History tells us oil prices are volatile and have a nasty habit of dropping precipitously, often without warning, or logic.
Obviously, the smart investor and business person will recognize this possibility exists and position themselves accordingly. In assessing this possibility, anyone exposed to the oil field realizes how important it is to use debt sparingly and live below one’s means.
Charlie leaned back in his chair and acknowledged he almost went bankrupt in the ‘80’s when the price of oil fell to $10 per barrel and he borrowed too much money. It was still a painful memory.
He then cocked his head to one side and said, “So I pay you to intentionally ignore some things, drill down into things that are important and insulate me from those that are important, but we never know when they’ll happen.”
The man had summed it up well.
In a world of uncertainty we need to concentrate on things we can actually control like spending, savings and quality of life. Plan for bumps in the road like hurricanes, accidents and even death. And learn to ignore the unimportant. This type of focus reduces stress and worry while allowing us to make better decisions in the process.
Dave Sather is a Certified Financial Planner™ and owner of Sather Financial Group, a fee-only investment management and strategic planning firm.
