The Investment Drama Triangle

Many of you have likely heard about staying out of someone’s “drama triangle”.  The drama triangle is about having a victim, a savior, and a persecutor and being in a place to change roles when it is convenient for you.  

Unfortunately, the Drama Triangle exists in Investing as well.  That Drama exists among Benchmarks, Timeframes, and Emotions.

Unreasonable Benchmarks:  It is easy for clients to compare their portfolios to the numbers they hear in the media each day.  However, these benchmarks likely are not an accurate reflection of their portfolio. Investors that compare their portfolio to the S&P 500, but aren’t 100% invested in stocks are likely to be disappointed during bull markets.  Additionally, if they are invested in actively managed funds, when you account for the expense and the tax impact, not to mention underperformance risk, you will also likely be disappointed when comparing to the S&P 500.

Unmanaged and Emotional Expectations:  Meb Faber likes to post the assumptions of different generations and various pension funds from time-to-time (you can follow Meb on twitter, @MebFaber).  The expected returns are alarming. If your expectations are not grounded, then your emotional triggers will likely be more sensitive.

Changing Performance Timelines:  Any asset manager can pick a timeframe that makes themselves look good and any investor can pick a timeframe to make an investment look bad.  Using time as a manipulative or selectively biased tool is a great way to add drama to your portfolio.


Anytime you choose to manipulate these corners of the investment drama triangle, you are a/ looking for a problem that may not exist, b/ creating unnecessary anxiety, and c/ likely triggering an action cycle that exacerbates the problem.


The Investment Drama Triangle has triggers that may or may not be initiated by the market.  The Investment Drama Triangle usually has a VUCA catalyst - VUCA is a term that originates from the Army War College. Ann Deaton, PhD, leadership coach, and Author of VUCA Tools for a VUCA World has studied these triggers extensively.  V is for Volatility, U is for Uncertainty, C is for Complexity, and A is for Ambiguity. It is just as likely that VUCA starts from other sources of wealth - your relationships, your experiences, and your time and one of the ways you try to lasso these characteristics is to “do something” with your investments.


Moving from Drama to Control


Several small shifts in mindset in Drama Triangles are necessary, but fortunately, completely in our control:  From Threat to Opportunity, From Reacting to Responding, From Outcome to Process.

First, we need to shift our Attention on the Process Not the Outcome.  When you focus on the process, you move away from problems and events to opportunities to excel.  

Secondly, we need to examine our Intentions to focus on the Plan and not the short-term triggers.  There are a lot of unlikely events that can happen - so many, in fact, that the probability that one (or more) of those unlikely events will happen may be higher than you think - it is important to manage your expectations and how that may affect your investments and your life events and how we can move from reacting to responding.  

Results should enable long-term wealth in the form of relationships, time, and experiences.  This is more likely to happen when you Reflect and Respond rather than emotionally react.  

Dynamic Tension exists between our life goals and our currently reality that fortunately we are in control of when “life happens”.  It requires that we keep moving towards the vision, or realizing how little our current reality impacts the vision. Wallowing in the current reality may be warranted in some cases for a short time, but it likely won’t impact your investments as much as you think.

How do we move from the Investment Drama Triangle?  There are several remedies that have been showcased on the internet for the Traditional Drama Triangle - The Empowerment Triangle and the Compassion Triangle are two examples.  Outside of reading Daniel Crosby’s Book The Behavioral Investor for strategic guidance and Ben Carlson’s Blog at www.awealthofcommonsense.com for daily “therapy”, I would invite you to the Investment Control Triangle.


The Three Points of the Investment Control Triangle:  

Control Your Expectations:  Behavior can be hazardous to your wealth.  Ungrounded expectations can be hazardous to your behavior.  Before any investor acts on expectations, it probably would be smart to make sure their expectations were realistic.

Control Your Benchmarks:  I admit that I look at the S&P500 and compare my portfolio to it - however, I do not have any emotional tie to any disparity between the two.  I also use multiple benchmarks and mixes. This provides the necessary context for me to process performance and understand how goals are still achievable with my mix.  I encourage investors to look at a 75% ACWI/ 25% AGG mix and then a 25% ACWI/75% AGG mix and see if their portfolio falls between those two just for a level set. You can also use other tools to benchmark against your risk rather than your returns.

Control Your Timeframes:  The markets don’t care where the earth is relative to the sun or how many times the earth has gone around the sun.  We have a reasonable idea of what to expect over time, but that is a range not a target. Each goal is likely tied to a timeframe and your advisor should be working with you to determine if the timeframe and the goal is reasonable.

Our news cycle has enough drama and the recent Tweet-a-thon on Trade Relations and the Federal Reserve are providing more fuel to our Investment Drama Triangles.  Here is what 19 months of data and “drama” look like.  

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If you take out all those points between the beginning and the end, it comes out to be a 3.4% return on the S&P.  That doesn’t sound dramatic at all. In the meantime, you have had the opportunity to diversify, rebalance, and contribute to make the most of the opportunity rather than wallow in the “problem”.