As we and many, many others have been covering, those who made concentrated bets in U.S. large-cap stocks ended up scoring this season. Those who remained more broadly diversified plodded along with less to celebrate at year-end.
The experience reminds me of the difference between a player versus a coach on your favorite sports team. While both hope to take the championship in the end, a player’s decisions are driven by the immediate: scoring that run, dodging the opponent, playing through a minor injury.
A coach, in the meantime, is called upon to make those difficult, “take one for the team” calls that often require short-term sacrifice to achieve long-term goals.
Be the Coach When You Manage Your Money
As a money player seeking game points, you may understandably be tempted to shift your investments away from recent underperformance and toward a more concentrated bet. As a money coach seeking overall victory, we urge you to fight your natural inclinations and heed the evidence on what factors are actually expected to contribute to your ultimate goals.
Win One for Your Future Wealth!
Following are a few inspirational quotes from some recent articles to further inspire you to “win one for the Gipper.” (Hint: In this case, the Gipper is your own long-term wealth.)
- “3 reasons to give up your search for stock market predictors,” by Mark Hulbert of MarketWatch: “The best predictor of how the stock market will perform in 2015 is right in your pocket. Yes, I’m referring to that coin you can flip.”
- “For investors, it’s a perfect time to go back to the basics,” by Barry Ritholtz of The Washington Post: “A lot of what people think of as trading skill is actually just random luck (a lesson that many investors eventually learn, but only after losing a huge amount of capital). Even those who beat the market a few years in a row end up a wash once fees and other costs are considered. … Keep your costs low and your turnover lower and you will win in the end.”
- Another one from the same, excellent Ritholtz piece (because if this doesn’t sound like every great coach I’ve ever admired, I don’t know what does): “You are an error machine, a mess of biases and emotions. … You allow yourself to be unsettled by the day-to-day noise — irrelevant news, temporary setbacks, even company gossip. This is a recipe for failure. In short, you suck at this. But it’s not your fault, it’s how you were built. A little awareness goes a long way in correcting these wetware errors.”
- “How Actual Returns Differ From Average Returns,” by Wealth of Common Sense blogger Ben Carlson is an evidence-based learning moment about how “performance over any given time frame is in a constant state of flux. Actual returns are rarely anywhere near average returns.” In other words, a short-term snapshot of an “inning” of market returns doesn’t tell you much about the outcome of your game, let alone your entire season.
- From “The Folklore of Finance: Beliefs That Contribute to Investors’ Failure,” by Paul Sullivan in The New York Times: “If investors could focus on their long-term goals and understand that it is not going to be a straight line to get there, they would have a greater chance of achieving those goals.”
- We mentioned this piece in our last post as well, but good news coverage bears repeating. From Jeff Benjamin’s InvestmentNews piece, “When underperforming the S&P 500 is a good thing”: “Blame the ever-expanding financial media or the increased awareness among investors, but there is no getting around the reality that clients have become programmed to dwell on the performance of a few high-profile benchmarks.”
We’ll wrap where we began, with a quote from one of the most respected coaches of all time, Vince Lombardi: “If you are willing to sacrifice the little things in life and pay the price for the things that are worthwhile, it can be done.”
Lombardi was probably speaking about how to be a winner in football, but the sentiment applies just as well in forming your financial game plan, built to span the seasons.