Aristotle said: We become what we repeatedly do.
This neatly summarises the transmission mechanism between actions, routine, habits and, eventually, identity.
Actions are things we do. Maybe once. Maybe everyday.
Frequency and repetition are the magic ingredients that change actions into routine and then eventually into habits.
Eventually habits sink in so deeply that they become the basis of our identity.
We become what we repeatedly do. If I write every day, I become a writer. If I do this for long enough, I might even become a good writer.
Habits are processes that have been programmed into our autopilot setting by routine and repetition. That’s important because willpower is weak and fickle.
Habits are habitual by definition. Habitual actions happen regardless of excuses. Habits are how you embed your process.
Your process matters. It may be more important than your goals.
Outcomes are the results of process. Good processes repeated over time lead to good outcomes more often than lazy processes do.
Focussing solely on outcomes forces us to make choices that are banal, short term or selfish. It takes our focus away from the journey and encourages us to give up too earlySeth Godin, The Practice
A useful concept in economics is the distinction between stocks and flows.
A stock variable is how much of something you have at a given point in time. Your net worth at 31 December 2020 is a stock variable.
Flows contribute to the stock like a stream flowing into a reservoir. The amount that you saved during 2020 is a flow variable. Flow variables (streams) measure the contribution to the stock. Stocks (reservoirs) are the accumulated results of flows (streams).
If you want a bigger reservoir, you need to grow your savings stream into a river. Your % savings rate is the most important number to track.
With investing, the problem with net worth is that it’s not directly under our control. We can’t control the stock market. As investors we have to accept volatility as the entry price to the best game in town. The stock market has historically delivered the best returns of any asset class over the long term.
Variable investment returns (aka luck or volatility) mean that our net worth is not just the sum of what we save. Our stock is not just the sum of our flows. We can’t control the stock, we can only control the flows.
Focus on The Process. At work, we can push for a promotion or look for a new job. We can get better at finding new clients and at sales.
As savers and investors, we can choose to pay ourselves first. We can cut our spending and track our % savings rate.
It’s helpful to have The Outcome in mind. But it’s The Process that gets you there. The goal shows you the direction to go, the steps are The Process. Left, Right, Left, Right, Repeat.
Closely related to the concept of The Process is the idea of practice.
The word practice has two meanings. On one hand, it’s what beginners do to get better. As in, I need to practice my my scales before my Grade 1 piano exam next month.
On the other hand, it’s also what professionals do on a daily basis. Doctors practice medicine. Lawyers practice law. This implies improvement by repetition even when you are already an expert.
The people that get really good are those that stick to their practice. The people who enjoy their practice keep going.
It’s the same with saving, investing and building wealth. To become a good investor, it’s best to start small and then invest repeatedly (e.g. monthly).
We become what we repeatedly do.