Controlling the Controllable

During a press conference after game two of the NBA playoffs, Oklahoma City Thunder All-Star Shai Gilgeous-Alexander attributed the team’s dominant win to two key factors, stating “At the end of the day, we just hung our hat on the controllables. Effort and hustle... Things that you can go out there and do no matter what’s going on.” This approach led the Oklahoma City Thunder to a historic season, registering the most wins (40) in NBA history by 15 points or more.

The same approach is critical for long-term investing as well. By focusing on those factors that are controllable rather than that aren't, investors are better positioned to make proactive, rational decisions, improving the potential outcomes of their long-term investment strategy.

But capital markets rely on, and are affected by, many variables, most of which are completely uncontrollable by investors. These include:

• Economic growth – just this morning, new GDP data showed that the U.S. economy slowed by an annualized real rate of 0.3% in Q1 2025. Many economists consider the definition of a recession as two consecutive quarters of negative GDP. And while the Q1 number appears to be “distorted by several special pricing factors” according to Goldman Sachs Economics Research, one more quarter of contraction would put the U.S. in recessionary territory. Economic cycles are out of investors’ control and often unpredictable. Basing long-term decisions on otherwise short-term economic data can hinder portfolio performance.
• Fiscal and Monetary Policy – economic policy uncertainty is higher now than at any point in modern history, as measured by the Economic Policy Uncertainty index shown below. As the Federal Reserve’s dual mandate (stable prices and full employment) contends with the potential conflicting effects of fiscal policy decisions, the lack of visibility into the future is understandably causing investors angst. At the same time, investors cannot control what effective tariff rate ultimately sticks around, nor can they control whether interest rates move up or down by year-end. Daily headlines can be a distraction from the more important drivers of long-term investment returns.

• Stock prices – in his classic investing book “Intelligent Investor,” author Ben Graham writes that “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” Investors have no control over how the price of a stock will behave over the next week, month, or even year. In the short-term, stock prices can be driven by factors like news headlines, fear and greed, speculation and other market dynamics like supply and demand. But over the long-term, the value of any given stock is driven by fundamental factors like earnings growth, balance sheet health, competitive advantages, and profit margins. At the end of the day, a stock is nothing more than an ownership stake in an actual company. Fundamental factors, rather than pollical factors, typically determine the value (weight) of a stock after the short-term factors have subsided.

Price vs Value

Fortunately, there are several controllable factors in investing that drive long-term returns. These include:

• Asset allocation – the first, and perhaps most important, controllable in investing is asset allocation. Getting an asset allocation plan right is critical in reducing the likelihood of abandoning your long-term investment strategy during a period of market volatility and discomfort. Determining a proper asset allocation, or mix of investments within a portfolio, takes thoughtful planning and incorporates time horizon, risk tolerance and specific investment objectives. This individualized approach focuses on establishing a longer-term asset allocation framework – how should the portfolio be split between stocks, bonds, and cash, for example. This “bigger picture” allocation is often referred to as a strategic asset allocation. From there, a careful analysis of asset valuations, forward return expectations and potential risk factors is needed to manage a more active tactical asset allocation. Not to be confused with market timing, adjusting tactical allocations relies more on dislocated valuations or other, relatively short-term, factors that aim to add value to an investment strategy based on current market environments.
• Risk management – active risk management is a controllable that can help cushion the magnitude of volatility within a portfolio. Similar to asset allocation, constructing a diversified portfolio of lowly-correlated assets can result in more stable investment returns as certain assets move in different directions at different times. The challenge is that there will be periods (some longer than others) where diversification seems to be ineffective. The past two years (2023/2024) provide a great example as the S&P 500, led by the “Magnificent 7” tech stocks, produced 25%+ returns in each calendar year, far outpacing most every other equity market around the globe. But diversification tends to show up when investors need it most. This year, international equities have returned more than 11% so far while the S&P 500 is down more than 5%. More broadly, allocating across asset classes like stocks and bonds can provide diversification benefits during periods of uncertainty as shown below. Managing risk through diversification is a factor that can be proactively controlled.  

• Security selection – as mentioned earlier, stock prices can be driven by noisy factors in the short-run, but their intrinsic value relies more on fundamental factors in the long-run. But not all stocks – or bonds or real estate assets – are created equal. Security selection (which specific stocks or bonds to choose) is an important controllable as well. If stocks are merely ownership shares in actual companies that produce actual goods and services by actual people, then a thorough analysis of that company - its operations, financials, and management team - should be performed to determine the quality of it’s investment merit. Of course, things can change as economic cycles undulate, innovations change markets, and company cultures shift. But the initial analysis process is a controllable that can provide an investor comfort in owning that security during periods of heightened uncertainty.

As the Oklahoma City Thunder enter the second round of the NBA playoffs in the coming days, they’re likely to continue focusing on the controllables that SGA attributed to their historic success – hustle and effort. During periods of market volatility, it’s important to focus on controlling the controllable: thoughtful asset allocation, prudent risk management, and careful security selection.

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We believe the information contained within this material to be reliable but do not warrant its accuracy or completeness. Opinions and views expressed herein reflect our judgement based on current market conditions and are subject to change without notice. Past performance is not indicative of future results. Additional risk considerations exist for all strategies, and the information provided is not intended as a recommendation, or an offer or solicitation to purchase or sell any investment product or service.