“The plan is nothing. Planning is everything.”

Macbeth and the Three Witches. Painting: Thomas Barker. Source: Folger Library

It’s an old Army expression, often attributed to Dwight Eisenhower. In an emergency, he went on, the first thing to do is to “take all the plans off the top shelf and throw them out the window.” The nature of an emergency is that you’re facing something unexpected, so events will not unfold according to schedule. But the planning process is indispensable. It forces us to look at all the situation from every possible perspective.

I’ve been thinking a lot about planning, especially in my new role building out a financial advisory enterprise. As a CFA charter holder, I’ve been trained to look at financial management in terms of risk and return, constrained by the need for cash, time horizon, a legal and regulatory framework, taxes, and any unique circumstances. These are the elements every investment policy should cover. Policies are typically employed by institutions like endowments or foundations to specify how to deploy their funds into the capital markets.

Individuals need an investment policy as well, but for people, an investment policy is usually built into our financial plans. The plan should specify risk, return and various constraints. A good plan, though, will also address issues that uniquely apply to individuals: emergency cash, various kinds of insurance, estate planning, social security, debt strategies, and tax planning.

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Good institutional investment management is governed by an Investment Policy Statement; individuals should invest their funds according to a comprehensive financial plan. In both cases, the policy or plan will point to a particular asset allocation. Some people can handle more risk, some less. In every case, the policy is a pole-star, around which everything else revolves, giving direction when needed.

Pole star time elapse photo. Photo: Udo Kügel. Source: Wikipedia

I thought about policy and planning lately when re-reading Shakespeare’s “Macbeth.” This is, of course, a very popular play during the Halloween season, with its witches and spells and “bubble, bubble, toil and trouble” cauldron. But Macbeth is also a great illustration of the need for guiding principles. A quick plot recap will make this plain:

Macbeth had just won a desperate battle and was returning with his friend Banquo when both of them encounter three witches. The witches announce that Macbeth will become king, and that Banquo will beget a line of kings.

Macbeth goes home to his castle and informs Lady Macbeth, who immediately envisions life as queen – if she can inspire her man to act. That night, the present King is Macbeth’s guest. He checks in, but he never checks out. Despite Macbeth’s doubts, Lady Macbeth goads and mocks him until he murders their guest, covers up the deed, and ascends to the throne. Later, Macbeth commissions the murder of his friend Banquo and commits numerous other atrocities.

The rest of the play describes Macbeth’s progressive isolation and descent into madness, tyranny, and utter despair. At one point, Macbeth appeals to the witches for guidance, and they give him more misleading information. Spoiler alert: the play doesn’t end well for either Macbeth or his Lady. This is, after all, a tragedy.

What does this have to do with investments? Macbeth starts with great prospects, a hero “full of the milk of human kindness.” His initial reaction to the witches’ prophesy is to wait. “Chance may crown me without my stirring,” he observes. But he has no plan or policy, no central, guiding principle. The witches’ evil designs and Lady Macbeth’s goads and mockery spur his “vaulting ambition” to overleap itself. He plans and executes the king’s murder, and after that, there’s no going back.

Photo: Public Doman. Source: Needpix

Without a plan, the circumstances and trials of a dramatic situation can overwhelm our judgement. We’re tested and tempted to abandon our principles and act in a way that seems most expedient at the time. Fantasies of quick riches (or wretched poverty) fill our imagination, and we’re captivated by the bewitching illusions of success (or misery). Sober judgement gives way to the goads of mockery, and we act on impulse rather than based on a clear-eyed assessment of the full picture.

A good policy may not have saved Macbeth. But a comprehensive planning process might have. Don’t doubt in the dark what’s been made clear in the light. Especially when things get spooky around Halloween.

Photo: 3D Animation Company. Source: Pixabay