I wonder how many of us can tell the difference between problem solving and firefighting.
Here’s a quick clue: If we find that we are regularly returning to jobs that we thought were completed only to have to redo them, over and over again, then perhaps we are firefighting.
This is because problems or jobs that we have mistakenly thought that we had tackled adequately were most probably not resolved properly the first time around. We most likely only did a quick patch-up job in the hope that the issue would somehow just go away. It often doesn’t.
If we are constantly firefighting, frantically putting out one fire after another, then we probably need to take immediate action to remedy the situation. This is because firefighting consumes valuable resources and saps our energy. Over the long term, it can damage not only our wealth, but also our health.
Tough love
Admitting that we are trapped in a firefighting situation is the first step to rehabilitation. If problems recur because the initial solutions were inadequate, then this could be a warning sign that we have been firefighting. And if our overall performance should drop as a result, then we are spending far too much time firefighting and probably missing out on more productive opportunities elsewhere.
Tackling a problem can require time and effort to diagnose the symptoms. It also needs a deep understanding of why the problems occurred in the first place.
The problem solver will need to be able to separate symptoms from causes. All too often, a firefighter will just treat the symptoms and not the underlying cause, only to find that the problems re-ignite.
Don’t fix what’s not broken
In general, patching isn’t a good idea because a problem’s root cause remains unresolved. Consider a share portfolio that is a tad under the weather. The one thing that we should never do is to tinker with it. It can be very tempting, for instance, to blindly jump in and do a bit of dollar-cost averaging.
By doing so, we may be throwing good money after bad in the hope that our average losses will look a little better. Averaging down is nothing more than mathematical trickery. Its effect is more emotional than arithmetical. We might even be tempted to trade ourselves back into profit. That would be patching on a grand scale. What should we do instead?
The first thing is set up a monitoring mechanism. We look at how our portfolio is doing against some benchmark, say, the Straits Times Index, if the portfolio consists mainly of Singapore shares. If the portfolio is not faring any worse than the general market, we are probably worrying too much over nothing.
The next step may be to revisit the reasons for setting up the portfolio in the first place. Can we even remember why we built the portfolio and why we chose those specific share? For myself, I am an income investor. I seek to generate income from a collection of assets. If the portfolio as a whole is generating rising income, then it is doing precisely what it is supposed to do.
When a problem is not a problem
The fact that the portfolio or a particular share might be worth less than the initial investment is irrelevant. There is nothing that we can do about share prices. We do, however, have a say in how much income is generated by the portfolio – that should be the overriding objective.
It is also possible that a portfolio has underperformed because we simply picked the wrong shares. Then again, we might have picked the right shares but not assembled them in the right proportion for the portfolio. The situation is far from hopeless. But it might require some wholesale changes to knock the portfolio back into shape.
If we should feel that we lack some of the necessary skills to pick stocks, then we may consider investing in index trackers or exchange-traded funds. This is akin to outsourcing the problem, and it can be quite useful and efficient to let someone else solve the problem for us. It might also give us more time to focus on enjoying the fruits of our investment.
Note: An earlier version of this article appeared in The Business Times.
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Disclosure: David Kuo does not own shares in any of the companies mentioned.
