“An operation without Schwerpunkt is like a man without character.”
–Field Marshal Paul von Hindenburg
Schwerpundt is a German word meaning main focus, center of gravity, or focal point. The term came from Von Clausewitz’s “On War” and refers to the strategic objective or goal of any military campaign or battle. It is the place of greatest importance against an adversary.
I love this word because it can also be applied to any number of investment decisions or problems. For all the work done to develop the right portfolio or all the techniques used to model decision-making, there still needs a focus on schwerpundt; what is the essence of what needs to done and what is it that is most critical.
For risk management, the focal point, is not losing money or protecting principal. All of the talk about risk management principles is important but has to be directed at the goal of protecting wealth. For value investing, it is finding cheap securities that have limited downside and the opportunity for significant gain. For portfolio management, it is finding the highest risk-adjusted diversified returns.
Each investor or portfolio manager may have different goals but identifying their focus should be straightforward, direct, and easily explained to anyone. The essence of investing should be easily understood. Just like in a battle, the center of gravity for winning should be identified and the focus for resources and attention.