3rd Quarter Report – 2017

The last few years of a bull market are always a bit of a mystery to professional investors; the market rises faster than it did in the early, cautious years when nobody believed there WAS a bull market, even though there appear to be fewer fundamental or economic reasons for it.  The current bull market churns on, even if nobody can explain it, and people who bail out in anticipation of a downturn do so at the risk of missing out on an untold number of months or years of (still somewhat inexplicable) gains.

A breakdown shows that just about everything gained at least modestly in value these last three months.  The Wilshire 5000 Total Market Index—the broadest measure of U.S. stocks—rose 4.59% for the most recent quarter, finishing the first three fourths of the year up 13.72%.  The comparable Russell 3000 index is up 13.91% for the year so far.

Looking at large cap stocks, the Wilshire U.S. Large Cap index gained 4.50% in the third quarter, to stand at a 14.19% gain so far this year.  The Russell 1000 large-cap index finished the first three quarters with a similar 14.17% gain, while the widely-quoted S&P 500 index of large company stocks gained 3.96% for the quarter and is up 12.53% in calendar 2017.

Meanwhile, the Russell Midcap Index has gained 11.74% so far this year.

As measured by the Wilshire U.S. Small-Cap index, investors in smaller companies posted a 5.39% gain over the third three months of the year, to stand at a 9.55% return for 2017 so far.  The comparable Russell 2000 Small-Cap Index is up 10.94% this year, while the technology-heavy Nasdaq Composite Index rose 5.79% for the quarter and is up 20.67% in the first three quarters of the year.

As nice as the returns have been domestically, international stocks this year have been even kinder to investment portfolios.  The broad-based EAFE index of companies in developed foreign economies gained 4.81% in the recent quarter, and is now up 17.21% in dollar terms for the first nine months of calendar 2017.  In aggregate, European stocks have gone up 19.87% so far this year, while EAFE’s Far East Index has gained 12.31%.  Emerging market stocks of less developed countries, as represented by the EAFE EM index, rose 7.02% in the third quarter, giving these very small components of most investment portfolios a remarkable 25.45% gain for the year so far.

Looking over the other investment categories, real estate, as measured by the Wilshire U.S. REIT index, posted a meager 0.61% gain during the year’s third quarter, and is now up 2.44% for the year so far.  The S&P GSCI index, which measures commodities returns, gained 7.22% for the quarter but is still down 3.76% for the year.  By far the biggest component is the ever-unpredictable price of oil.  Since the bottom on February 11, 2016, crude oil prices have actually risen by 50%, but the trajectory has been choppy and unpredictable.

In the bond markets, you know the story: coupon rates on 10-year Treasury bonds have risen incrementally from 2.30% at this point three months ago to a roaring 2.33%, while 30-year government bond yields have also risen incrementally, from 2.83% to 2.86%.

One might imagine that the uncertainties around government policy and fundamental economic issues (failed attempts to repeal the Affordable Care Act and a new promise to write a new tax code, for example) would spook investors, and if those weren’t scary enough, there’s the nuclear sabre rattling sound coming from North Korea.  Hurricanes have disrupted economic activity in Houston and large swaths of Florida, while Puerto Rico lies in ruins.  Yet the bull market sails on unperturbed.

How can this be?  Because if you look past the headlines, the underlying fundamentals of our economy are still remarkably solid this deep into our long, slow economic expansion.  Corporations reported a better-than-expected second quarter earnings season, with adjusted pretax profits reaching an annualized $2.12 trillion—which means that American business is still on sound footing.  Unemployment continues to trend slowly downward and wages even more slowly upward.  The economy as a whole grew at a 3.1% annualized rate in the second quarter, which is at least a percentage point higher than the recent averages and marks the fastest quarterly growth in two years.  There is hope that the new tax package will prove as business-friendly as the Trump Administration is promising.

Economists tell us that the multiple whack of hurricane damage will slow down economic growth figures for the third quarter, although the building boom fueled by the destruction will mitigate that somewhat.  There are no economic indicators that would signal a recession on the near horizon, and one of the potential panic triggers—a Federal Reserve Board decision to recklessly raise interest rates—seems unlikely given the Fed’s extremely cautious approach so far.

Meanwhile, as you can see from the accompanying chart, fourth quarters have historically been kind to investors—much kinder than third quarters.

There are still potential speed-bumps down the road.  The Trump Administration has threatened multiple trade wars with America’s major trading partners: the NAFTA members Canada and Mexico, and with China.  Tight immigration rules could lead to limited labor supplies.

But it’s hard to be pessimistic when your portfolio seems to grow incrementally every quarter.  The current 12-year stretch of economic growth below 3% a year is America’s longest on record.  But if the U.S. charts a prudent economic course, it’s possible that the current expansion could at least set new records for longevity.  This current expansion just turned 99 months old.  The all-time record is 120 months, from 1991 to 2001.  We may have to wait two more years for the next great buying opportunity in U.S. stocks.

Sources:

Wilshire index data: http://www.wilshire.com/Indexes/calculator/

Russell index data: http://www.ftse.com/products/indices/russell-us

S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–

Nasdaq index data: http://quotes.morningstar.com/indexquote/quote.html?t=COMP

http://www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx

International indices: https://www.msci.com/end-of-day-data-search

Commodities index data: http://us.spindices.com/index-family/commodities/sp-gsci

Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

Bond rates:

http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/

General:

http://www.marketwatch.com/(S(jpgxu155hzygvlzbebtr5r45))/story/what-rose-in-the-third-quarter-stocks-bondsbasically-everything-2017-09-29?link=MW_story_latest_news

http://www.marketwatch.com/(S(jpgxu155hzygvlzbebtr5r45))/story/economys-2nd-quarter-growth-raised-to-31-2017-09-28?link=MW_story_latest_news

http://www.marketwatch.com/(S(jpgxu155hzygvlzbebtr5r45))/story/us-economy-likely-to-speed-up-in-2018-but-not-shatter-any-records-2017-09-25?link=MW_latest_news

 

Puerto Rico – Statehood or Bust

You’ve probably read about the troubled finances of Puerto Rico, the U.S. territory in the Caribbean that has issued more than $70 billion in municipal bonds, with no visible way to pay out the interest, much less the principal.  Now Puerto Rican have overwhelmingly voted that they want their island territory to become the 51st U.S. state.

Puerto Rico has been an autonomous territory since 1898, when the U.S. forcibly acquired it from Spain.  The territory was granted self-rule in 1952.  Last year, in response to the mounting fiscal crisis, Congress revoked some of the local government’s autonomy, creating a control board that has the power to veto any item in Puerto Rico’s budget.  In light of this forced change in autonomy, on June 11th the territory asked voters to weigh in on the territory’s status.  In 2012, the last time islanders voted on the issue, 61% of voters who made a selection picked statehood as their preferred alternative. In this vote, nearly half a million voters chose statehood on the ballot, compared with just 7,800 votes for independence from the U.S. and 6,800 votes for the status quo territorial status.

However, some are questioning the validity of the vote, since just 23% of eligible voters chose to go to the polls—the lowest participation in any election since 1967.  Part of the low turnout was attributed to the fact that three of Puerto Rico’s political parties urged their supporters to boycott the vote—which, of course, means that the parties claimed that “boycott” soundly defeated the statehood results.

The vote does nothing toward solving Puerto Rico’s fiscal crisis, which has been compared unfavorably to the Greek debt problems.  And even a resounding victory for statehood would have been mostly symbolic. For Puerto Rico to enter the union, Congress would have to pass a law admitting it. Even though the Republican platform of 2016 officially supported Puerto Rican statehood, the Republican leadership would not rush to add two senators and five representatives who would probably, based on Puerto Rican political history, lean Democratic.

Sources:

http://abcnews.go.com/International/wireStory/puerto-rico-gov-upholds-statehood-vote-hit-boycott-47976936

http://www.economist.com/news/united-states/21723149-more-60-puerto-ricans-tell-pollsters-they-would-commonwealth

 

Portfolio Performance Defined

You receive portfolio performance reports every three months—a form of transparency that financial planning professionals introduced at a time when the typical brokerage statement was impossible to decipher.  But it might surprise you to know that most professionals think there is actually little value to any quarterly performance information, other than to reassure you that you actually do own a diversified portfolio of investments.  It’s very difficult to know if you’re staying abreast of the market, and for most of us, that’s not really relevant anyway.

Why?

The only way to know if your investments are “beating the market” is to compare their performance to “the market,” which is not easy. You can compare your return to the Dow Jones Industrial Average, but that index represents only 30 stocks, all of them large companies.  Most peoples’ investment portfolios include a much larger variety of assets: U.S. stocks and bonds, foreign stocks and bonds, both including stocks of large companies (large cap), companies that are medium-sized (midcap) and smaller firms (small cap).  There may be stocks from companies in emerging market countries like Sri Lanka and Mexico.  There may be real estate investments in the form of REITs and investment exposure to shifting commodities prices, like wheat, gold, oil and pork bellies.

In order to know for sure that your particular batch of investments outperformed or underperformed “the market,” you would need to assemble a “benchmark” portfolio made up of index funds in each of these asset categories, in the exact mix that is in your own portfolio.  Even if you could do that precisely, daily, weekly and monthly market movements would distort the original portfolio mix by causing some of your investments to gain value (and become larger pieces of the overall mix) and others to lose value (and become smaller pieces), and those movements could be different from the movements inside the benchmark.  After a month, your portfolio would be less comparable to the benchmark you so painstakingly created.

Many professionals believe that there are several keys to evaluating portfolio performance in a meaningful way—and the result is very different from comparing your returns with the Dow’s.

1) Take a long view.  What your investments did last month or last quarter is purely the result of random movements in the market, what professionals call “white noise.”  But you might be surprised to know that even one-year returns fall into the “white noise” category.  It’s better to look at your performance over five years or more; better still to evaluate through a full market cycle, from, say, the start of a bull market to the start of a new bull market.  However, you should remember that there are no clear markers on the roadside that say: “This line marks the start of a new bull market.”

2) Compare your performance to your goals.  Your financial plan indicated that your investments needed to generate (let’s suppose) 5% returns above inflation in order for you to have a great chance of affording a long, comfortable retirement.  If that’s your goal, then chances are, your portfolio is not designed to beat the market; it represents a best guess as to what investments have the best chance of achieving that target return, through all the inevitable market ups and downs between now and your retirement date.  If your returns are negative over three to five years, that means you’re probably falling behind on your goals—and you might be taking too much risk in your portfolio.

3) Recognize that some of your investments will go down even in strong bull markets.  The concept of diversification means that some of your holdings will inevitably move in opposite directions, return-wise, from others.  Ideally, the overall trend will be upward—the investments are participating in the growth of the global economy, but not at the same rate and with a variety of setbacks along the way.  If you see some negative returns, understand that those are the investments you’re counting on to give you positive returns if/when other parts of your investment mix are suddenly, probably unexpectedly, turning downward.

That doesn’t mean you shouldn’t look at your portfolio statement when it comes out.  Make sure the investments listed are what you expected them to be, and let your eye drift toward the longer time periods.  Notice which investments rose the most and which were down and you’ll have an indication of the overall economic climate.  And if your overall portfolio beat the Dow this quarter, or over longer periods of time, well, that probably only represents white noise

Aging Dilemma

Should today’s 70-year-old American be considered “old?”  How do you define that term these days?  Statistically, your average 70-year-old has just a 2% chance of dying within a year.  The estimated upper limits of average life expectancy is now 97, and a rapidly growing number of 70-year-olds will live past age 100.

Perhaps more importantly, today’s 70-year-olds are in much better shape than their grandparents were at the same age. In most developed countries, healthy life expectancy from age 50 is growing faster than life expectancy itself, suggesting that the period of diminished vigor and ill health towards the end of life is being compressed.

A recent series of articles in the Economist magazine suggest that we need a new term for people age 65 to 85, who are generally hale and hearty, capable of knowledge-based work on an equal footing with 25-year-olds, and who are increasingly being shunted out of the workforce as if they were invalids or, well, “old.”  Indeed, the article suggests that if this cohort does NOT start returning to the workplace, the impact could be catastrophic on society as a whole.

Globally, a combination of falling birth rates and increasing lifespans threaten to increase the “old-age dependency ratio” (the ratio of retired people to active workers) from 13% in 2015 to 38% by the end of the century.  That, in turn, could lead to huge fiscal strains on our pension and Social Security systems, because fewer workers would be paying for retirement benefits for more retirees.

What to do?  The article notes that, in the past, whenever a new life stage was identified, deep societal and economic changes followed in the wake.  A new focus on childhood in the 19th century paved the way for child-protection laws, mandatory schooling and a host of new businesses, from toymaking to children’s books.  When teenagers were first singled out as a distinct demographic in America in the 1940s, they turned out to be a great source of economic value, thanks to their willingness to work part-time and spend their income freely on new goods and services.

The next most logical shift in our thinking could be separating out people age 65-80 from the traditional “old” and “retiree” category—and calling them something different.  (The article doesn’t offer a suggested name.)  They might continue at their desks, or downshift into the kinds of part-time work that emphasize knowledge and relationships.  Many who experienced mandatory retirement retired to the so-called gig economy.  Though gigging is usually seen as something that young people do, in many ways it suits older people better. They are often content to work part-time, are not looking for career progression and are better able to deal with the precariousness of such jobs. The article notes that a quarter of drivers for Uber are over 50.

More broadly, a quarter of all Americans who say they work in the “sharing economy” are over 55.  Businesses that offer on-demand lawyers, accountants, teachers and personal assistants are finding plenty of recruits among older people.

Still others are preparing for life beyond traditional retirement by becoming entrepreneurs. In America people between 55 and 65 are now 65% more likely to start up companies than those between 20 and 34.  In Britain 40% of new founders are over 50, and almost 60% of the over-70s who are still working are self-employed.

One large economic contribution made by older people that does not show up in the numbers is unpaid work. In Italy and Portugal around one grandmother in five provides daily care for a grandchild, estimates Karen Glaser from King’s College London. That frees parents to go out to work, saving huge sums on child care.

All of these changes represent societal adjustments to a reality that isn’t well-publicized: that the traditional retirement age increasingly makes no sense in terms of health, longevity and the ability to contribute.  The sooner we find a label for healthy people age 65 to 80, the faster we can start recognizing their potential to contribute.

Source:

https://www.economist.com/news/special-report/21724745-ageing-populations-could-be-boon-rather-curse-happen-lot?fsrc=scn/tw/te/bl/ed/gettingtogripswithlongevity

 

Don’t Put Off Fun

If you’re like most people, you carefully put off doing something fun—like taking a trip or treating yourself—until you finished your work.  Of course, for most people, the work never ends, and the fun gets put off over and over and over again.

The hidden assumption behind putting off fun is that you won’t enjoy it if you have uncompleted work on your desk.  But what if research showed that when you put fun ahead of work on your priority list, it is at least as much fun as it would have been in the unlikely case of your finally getting everything cleared off your desk?  Is it possible that you’ve been deferring gratitude for no reason?

Several experiments suggest that this might actually be the case.  In one, working adults were given two assignments: a strenuous battery of cognitive tests and a fun iPad game that involved creating and listening to music.  Some were assigned the cognitive tests first, others started with the iPad game, and they were asked beforehand how much fun they expected to have.

The beforehand responses suggested exactly what you would think: people in the
“play first” category predicted lower enjoyment ratings than participants in the “play after” group.  But when asked the same question after they had completed both activities, the participants reported equally high enjoyment, regardless of the order.  Play first participants enjoyed themselves just fine.

In a followup study, some University of Chicago students were given massages before their midterm exams, and some once their exams were finished.  Both groups were asked to rate their expectations before and their actual experience after.  Nearly all students thought they’d be too stressed to enjoy the massages if they received them before the exams, but afterwards there was no difference between those who received the massages before and after the demanding tests.  While the students assumed they would be highly distracted if they received a massage before midterms (they predicted exams would dominate nearly 40% of their attention at the spa), this didn’t actually happen. In reality, the students thought about midterms less than 20% of the time. They mostly just enjoyed themselves.

American workers work longer hours and take fewer vacations than anyone in the industrialized world. Most of them are unhappy with work-life balance, leave paid vacation days on the table, and wish they could find more time for fun.  But these studies, and others, suggest that leisure improves our work.  People often work better and are more satisfied with their jobs after returning from restful breaks.  We may keep postponing doing something fun for “the right time,” only to realize that it never seems to come.

Having fun may seem like hard work. It’s not. You could wait for a “right time” to enjoy something or just enjoy it now. The point is, you’ll enjoy it either way.

Source:

https://hbr.org/2017/07/stop-putting-off-fun-for-after-you-finish-all-your-work?utm_campaign=hbr&utm_source=twitter&utm_medium=social

 

Measuring the Market

Have you ever wondered what stock market professionals and equity analysts talk about in their spare time?  Recently, the Bloomberg website featured a debate about something that is getting a lot of attention recently: the historically high, and still-rising U.S. stock market valuations.  People have been willing to pay more, and more, and more for a dollar of corporate earnings.  What does that mean about future returns?

Let’s look over the shoulders and see how two professionals approach the question of how to look at today’s markets.

Bloomberg Gadfly columnist Nir Kaissar starts by noting that the Standard & Poor’s 500 Index has beaten both the MSCI EAFE Index — a collection of developed market stocks outside the U.S. — and the MSCI Emerging Markets Index by 6 percentage points a year since March 2009, when the market hit bottom, through May, including dividends.  Whether you measure market prices by price-to-earnings ratio, price-to-book or price-to-cash flow, U.S. stocks are now more expensive than their foreign counterparts.

To Kaissar, that suggests that investors should consider moving at least some of their money out of American companies and into companies domiciled elsewhere.

Bloomberg View columnist Barry Ritholtz countered that valuation is largely driven by psychology.  We are experiencing a bull market in American stocks, which can be defined (in psychological terms) as a period when investors become willing to pay more and more for a dollar of earnings.  Eventually this will turn around, and the regional performance gap between the U.S. and Europe will reverse.

But for Ritholtz, the important issue is timing.  You could have used Kaissar’s argument four or five years ago, gotten out of U.S. equities, and you would have missed a nice runup while foreign stocks were going nowhere.  Is it possible that the same will be true over the next few years?  (Hint: it is definitely possible.)

Kaissar responded with a definition of risk vs. valuations—the idea that investors are generally willing to pay more for less risky stocks.  So can we make an argument that the S&P 500—with a price-to-book ratio about twice as high as the EAFE basket of stocks—is half as risky as stocks trading in the rest of the world?  He doesn’t think so, and the conclusion is that American stocks are mispriced.

Ritholtz says that rather than trying to time which part of the world is going to do better or worse, it’s better to own it all.  Instead of U.S. stocks vs. world stocks, own a portfolio that includes all of them in proportion.

Aha! says Kaissar.  U.S. investors commonly allocate 70 percent to 80 percent of their stocks to the U.S., even though U.S. stocks represent only 50 percent of global market capitalization.  He says that if you believe in true diversification, it would make more sense to create portfolios with a U.S. stock allocation that’s closer to 45 percent, tilting slightly toward the global stocks that are currently trading on sale.

Ritholtz makes a final argument, saying that sometimes cheap stocks get cheaper and continue to fall; other times expensive stocks get more expensive and keep going up.  He doesn’t want to abandon U.S. equities, but he finds common ground with Kaissar when he recommends that people with U.S.-heavy portfolios consider diversifying into MSCI EAFE and MSCI EM indexes—not for timing purposes, but because it’s prudent diversification.  You can see exactly how boring the cocktail conversations of stock analysts can be by viewing the entire discussion here: https://www.bloomberg.com/view/articles/2017-06-26/how-to-know-when-stocks-are-properly-valued-a-debate#596235f3a911d

Source:

https://www.bloomberg.com/view/articles/2017-06-26/how-to-know-when-stocks-are-properly-valued-a-debate#596235f3a911d

Dump the Dow

Chances are, the market barometer you most often hear about is the Dow Jones Industrial Average.  Every evening, the Dow’s ups or downs are soberly reported as if they reflect something important.

They don’t.

A recent online article noted that the 37-year-old index only reflects the performance of 30 U.S. multinational companies, and it doesn’t even reflect their average performance.  The companies with higher share prices count more in the performance numbers, so that when a company’s stock enjoys a price surge, it makes up a bigger part of the index.

This can make for some interesting differences between actual market performance and underlying valuation.  The Goldman Sachs brokerage firm recently reported a $224.41 share price, which accounted for 1,537 of the Dow’s total points. By comparison, General Electric, which has a $146 billion larger market cap, only accounted for 185 Dow points with its $27.02 share price.

With only 30 stocks, the Dow doesn’t come close to representing the U.S. business market.  Based on its closing price on June 29, the total market capitalization of the companies in the index was about $6.37 trillion, compared with $21.8 trillion for the stocks that make up the S&P 500.  The Dow has no representation in the utilities and real estate sectors.  The Dow doesn’t include Alphabet (parent company of Google) or Amazon.com, Facebook, Berkshire Hathaway or Alibaba Group.  With the S&P 500 you get a more realistic look at what’s happening across the entire spectrum of the U.S. marketplace.

In terms of how it reflects the market, the Dow was an extremely important index in the days of the rotary phone.  In today’s digital age, it has become a historic novelty.  It’s time to proclaim the S&P 500 as the market barometer for larger American companies.

Source:

http://www.businessinsider.com/its-time-for-wall-street-to-dump-the-dow-2017-7

Meditation Benefits

When most people think of the benefits of meditation, they get a vague image of peacefulness and tranquility, a quality of “mindfulness” that contrasts nicely with the distractions and hubub of our modern age.  You might be surprised to find that scientists are finding more tangible benefits to a meditation habit.

In one study conducted by Harvard researchers at Massachusetts General Hospital, patients who meditated for eight weeks actually rebuilt the gray matter in their brain, adding to their mental capacity.  This suggests that some of the reported benefits, like stress reduction and clarity, may be due to an actual increase in brain tissue.

Another study reported benefits to a very different part of the body.  Patients who suffered from gastrointestinal disorders, irritable bowel syndrome (IBS) and inflammatory bowel disease (IBD) found relief after a period of deep rest and meditation.

In both clinical trials, participants engaged in meditation practices each day for just 30 minutes, which means you don’t have to check into a monastery to to claim the benefits.  And the process of meditation wasn’t the (sometimes stressful) attempt to “turn off the brain.”  Instead, the research subjects were encouraged to adopt a non-judgmental awareness of sensations, feelings and state of mind.

Source:

http://www.collective-evolution.com/2016/06/28/scientists-demonstrate-what-meditation-does-to-your-gut-your-brain/

Where the Money Goes

It’s nearly tax time again, and as you look over your tax payments for calendar 2016, you’re undoubtedly wondering where those dollars are being spent.

The Wall Street Journal recently published a chart which breaks down spending for every $100 of tax receipts—and concludes that the U.S. government is actually a very large insurance company that also happens to have an army.

For every $100 you pay in taxes, $23.61 goes to Social Security payments and administration—basically old age insurance for retirees.  Another $15.26 goes to Medicare, the government health insurance program.  Medicaid, the health insurance program for the poor, accounts for another $9.55 of that $100 tax bill—bringing the total costs for various civilian insurance programs to 48% of the total budget.  And that army?  It costs $15.24 of every $100 the government collects in taxes, not counting veterans benefits.

In all, the 2016 federal budget fell $15.24 out of every $100 short of revenues equalling expenses.  Where would you cut?

Things like federal expenditures and grants for education ($2.08), food stamps ($1.89), affordable housing ($1.27) and foreign aid ($1.14) actually make up a very small part of the budget, smaller than interest payments on the national debt ($6.25).

There has been talk about helping reduce the budget by lowering expenditures on the National Endowments for the Arts and Humanities, which together represent eight tenths of one cent of that $100 tax bill.  This would be comparable to someone trying to pay off his mortgage by looking for coins under the sofa cushions.

Source:

https://www.wsj.com/articles/how-100-of-your-taxes-are-spent-8-cents-on-national-parks-and-15-on-medicare-1492175921

The Professional Mindset

Have you ever noticed that some people seem to be consistently successful at complex and creative tasks, while others see only fitful success and repeated failure?  The difference might not lie in talent or motivation, but simply in mindset—in the way these tasks are approached by people who take a professional mindset vs. the great majority of people who function as amateurs.

What’s the difference?  Consider these mindset differences as a roadmap to shifting your attitude from amateur to professional, or confirming the fact that you’ve already arrived at the professional mindset:

  • Amateurs stop when they achieve something. Professionals understand that the initial achievement is just the beginning.
  • Amateurs have a goal. Professionals have a process.
  • Amateurs think they are good at everything. Professionals understand their circles of competence.
  • Amateurs see feedback and coaching as someone criticizing them as a person. Professionals know they have weak spots and seek out thoughtful criticism.
  • Amateurs value isolated performance. Think about the receiver who catches the ball once on a difficult throw. Professionals value consistency. Can I catch the ball in the same situation 9 times out of 10?
  • Amateurs give up at the first sign of trouble and assume they’re failures. Professionals see failure as part of the path to growth and mastery.
  • Amateurs don’t have any idea what improves the odds of achieving good outcomes. Professionals do.
  • Amateurs show up to practice to have fun. Professionals realize that what happens in practice happens in games.
  • Amateurs focus on identifying their weaknesses and improving them. Professionals focus on their strengths and on finding people who are strong where they are weak.
  • Amateurs think knowledge is power. Professionals pass on wisdom and advice.
  • Amateurs focus on being right. Professionals focus on getting the best outcome.
  • Amateurs focus on first-level thinking. Professionals focus on second-level thinking.
  • Amateurs think good outcomes are the result of their brilliance. Professionals understand when outcomes are the result of luck.
  • Amateurs focus on the short term. Professionals focus on the long term.
  • Amateurs focus on tearing other people down. Professionals focus on making everyone better.
  • Amateurs make decisions in committees so there is no one person responsible if things go wrong. Professionals make decisions as individuals and accept responsibility.
  • Amateurs blame others. Professionals accept responsibility.
  • Amateurs show up inconsistently. Professionals show up every day.

 

There are a host of other differences, but they can effectively be boiled down to two things: fear and reality.

  • Amateurs believe that the world should work the way they want it to. Professionals realize that they have to work with the world as they find it.
  • Amateurs fear to be vulnerable and honest with themselves. Professionals feel like they are capable of handling almost anything.

If you set aside the important factor of luck, which is unpredictable and outside your control, which approach do you think is going to yield better results?

 

Source:

The Difference Between Amateurs and Professionals