The Mentor Journal
Portfolio Management
6 Tips for Managing Investments During Uncertain Times
Business person trying to manage an uncertain market
By Chris Nelson
November 4, 2022
Reading Time: 6 minutes

As we all know, this year has been a wild and volatile environment for the bond market and fixed-income investment portfolio managers at community financial institutions.  The uncertain conditions has made managing the portfolio more challenging than ever, and I’ve spoken to many community bankers who just feel shell-shocked.

Almost everyone knows and expects that managing an investment portfolio will have its share of uncertainty, especially given its complexities and moving parts.  As a portfolio manager, you need to be ready for the curve balls that come your way.  But what can you do to help prepare yourself for when it happens?

I came across an article in the Harvard Business Review that I wanted to share with you.  While the topic was about leading through uncertainty, I thought it had a lot of applicability to the day-to-day challenges of investment portfolio management. 

The article talks about six tips to help you shift your perspective and adopt a good mindset when uncertainty rears its ugly head.  Here they are: 

Table of Contents

Tip #1: Embrace the Discomfort of Not Knowing

It can feel a little uncomfortable not to have all the answers up front, but acknowledging that you don’t know is part of the learning process and can remove some of the pressure you might feel in the moment.  This was a lesson that I learned early on as a young portfolio manager. 

At first, I pressured myself because of what I perceived as a need to anticipate and have the answers ahead of time, particularly ahead of meetings.  However, I learned that the world didn’t end when someone asked a question, and my response was, “You know, that’s a good question.  I don’t have the answer right now, but I will find out and follow up with you if that’s okay?” 

In my experience, I never had anyone disagree.  Taking this approach gave me the time to learn what I needed to know and provide a better response, and it helped reduce my internal stress in the process.

Tip #2: Distinguish Between “Complicated” and “Complex” Issues

Many of us use these two terms interchangeably, but they really represent two different situations.  In the article, the writer explains that the term “complicated” refers to something that may be difficult or highly technical but which can be broken down into parts, allowing you to work toward a solution either on your own, with help from your team, or by calling in outside help.  Examples of this might include tax laws or accounting rules.

By comparison, complex situations are made up of many interdependent elements.  In addition to the number of variables, some may change over time and in unpredictable ways.  This description sounds like many challenges we face in managing the investment portfolio. 

Finding solutions for complex challenges is different than for complicated ones.  In this case, you’ll generally get to an answer through a process of trial and error, and you have to be okay with taking a more flexible approach and be willing to learn and adapt along the way.

Tip #3: Let Go of Perfectionism

The article discusses that trying to shoot for perfection in a complex environment is a waste of time.  Instead, it is better to aim for making progress, learning from mistakes made, and acknowledging that you have the ability to make course corrections if necessary.

Personally, this is a step that I am constantly working on.  After being a “recovering perfectionist” for 30+ years, I still find myself tempted to come up with the “perfect” solution to a portfolio challenge or shift in market conditions.  But I know that because things are constantly in flux, trying to do so is a fool’s errand. 

What I’ve found is better is taking an incremental, step-by-step approach that allows me to adapt as conditions change (and they will), learn from the process and mistakes I might make, and make adjustments as I execute my investment strategy.

Tip #4: Resist Oversimplification and Quick Conclusions

It can be tempting to take a complex situation and try to boil it down to something simpler.  I think it’s just human nature, especially if we’re action-oriented – we want to make challenges easier to tackle. 

But in trying to simplify the challenge, we run the risk of oversimplifying.  When that happens, there’s a chance that we become too narrowly focused and possibly miss important and relevant information that could be critical to developing a solution.  And the more complex the environment, the more potential to want to simplify.

Think about everything that’s happened in the bond markets and your institution’s investment portfolio over the past few months.  With all the twists, turns, and moving parts, I can see how someone might want to boil things down in an effort to get on top of the situation.  But in many cases, doing so leads to making potential mistakes that only compound the existing problem and more headaches and heartburn.

The key to avoiding oversimplification is to balance the need for action with a disciplined approach that allows time to understand the core problem and any complexities or variables.  Slowing down just a little also gives you a chance to be sure that you don’t base your decisions on personal biases or a too-narrow perspective.

Tip #5: Don’t Go It Alone

As I’ve talked with many community bankers over the years, I’ve met people who have told me about feeling isolated as they try to deal with the uncertainties and challenges of managing the investment portfolio.  The article notes that some of this isolation comes from a belief that the person feels the need to solve all the issues themselves. 

However, as the workload grows and complexities increase, it becomes harder to do that, and you can begin to feel overwhelmed.  You feel like you’re drowning in a sea of uncertainty and “analysis paralysis.”

In these moments, having a network of people to whom you can reach out becomes vital.  Being able to have a conversation with someone who understands what you’re going through and can provide a fresh perspective can be so valuable, especially when times feel uncertain.

One of the best investments I’ve made in my personal and professional development is cultivating my own personal network.  It’s a blend of friends, colleagues, and other professionals that I can turn to when I have questions, need help from someone with experience, or get guidance, fresh thinking, and encouragement during challenging times. 

And it’s why I offer 1-on-1 mentoring to provide community bankers with someone they can reach out to for help with investment, banking, and finance questions.  Regardless of how you do it, take the time to create a network that you can tap into to help manage things during periods of uncertainty.

Tip #6: Zoom Out

Finally, Step #6 in managing uncertainty is to zoom out.  When you’re in the midst of facing a challenge, you can become stuck because you’re too immersed.  Zooming out, or taking a step back, provides you with a look at the “big picture.” 

This broader perspective on the issues can reveal things you might otherwise have missed.  When you zoom out, it becomes easier to see variables and other factors that might help with developing solutions or help prevent new challenges from arising.  Stepping back also allows you to be more adaptable and able to make course corrections if needed.

Reviewing the 6 Tips

Those are the six tips to managing uncertainty as an investment portfolio manager.  To recap, they are:

  1. Embrace the Discomfort of Not Knowing
  2. Distinguish Between “Complicated” and “Complex” Issues
  3. Let Go of Perfectionism
  4. Resist Oversimplification and Quick Conclusions
  5. Don’t Go It Alone
  6. Zoom Out

Lately, it seems we’ve had a constant barrage of reminders that we really can’t control much of the change, complexity, and uncertainty that’s out there and affects our investment portfolios.  But by using these six strategies, we can improve our ability to learn, reduce our stress, and navigate the complexity of the investment world in which we live.

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