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What do Football and a Good Investment Strategy Have in Common?

MONEY TALKS 

Never Give Up - The New England Patriots entered December with an 8-3 win-loss record looking to sure up the division and contend for the # 1 seed in the AFC. Everything seemed to be going according to plan as the Patriots rolled over the Minnesota Vikings on December 2nd, improving their record to 9-3. However, after a fluke loss to the Miami Dolphins in the last minute of the game, the team put themselves in an uphill position with a road trip to their arch rivals, the Pittsburg Steelers, on the horizon. Shockingly, the Patriots put up another dud to lose their second consecutive game in December for the first time since 2002. With their backs against the wall, rather than take the easy route and give up, the Patriots ripped off a 5 game winning streak which culminated in a Super Bowl victory over the St. Louis Los Angeles Rams.

Similar to the Patriots, investors entered the month of December with some positive momentum. Unfortunately that momentum quickly disappeared as the stock market had a historically bad December finishing down over 9% for the month. Those investors who could stomach the volatility and hold their ground were rewarded with a strong January where the market was up almost 8%. Like an NFL season, it’s completely normal for the stock market to have good weeks and bad weeks; however, only those investors who stay in the market are rewarded over the long-term. Meanwhile, investors who run for cover at the first sight of adversity are left watching from the sidelines (like the Steelers).

A Balanced Team Wins – Unlike in past years, the 2018 Patriots were not carried by Tom Brady’s arm. This year’s team has a well balanced offense, finishing 8th in the league in passing with 266 yards/game and 5th in the league in rushing with 127 yards/game. Their defense, while spotty at times, complimented the offense well by making some big plays in key games, finishing 7th in the league with 20.3 points allowed per game. Meanwhile on special teams, Stephen Gostkowski finished 6th in the league in scoring, with no missed field goals inside of 40 yards.

Like a well balance football team, a good investment portfolio has different asset classes that complement each other well. Owning different asset classes in your portfolio inherently reduces your risk exposure because each asset class reacts differently to changing market conditions. U.S. stock and bonds are the two most basic asset classes that should be included in any portfolio, but just as football games are won with offense, defense, and special teams it’s important to layer in other asset classes such as foreign stock. While Wall Street may seem like the driving force behind the world’s economy, the United States makes up just over half (52%) of the world equity market capitalization. 

Do Your Job and Listen to Your Coach – Somewhere in the hallowed grounds of Gillette Stadium near the Patriots locker room there is a sign on the wall that reads, “Do Your Job.” While simplistic, these 3 words have been the team’s mantra from the better part of two decades. The concept sounds straightforward enough, yet when the game is on the line it’s easy to get distracted. Bill Belichick has built the Patriots franchise around team first players who are able to fixate on their own responsibilities and trust their teammates. By encouraging his players to only focus on what they can control, the Patriots as a team are certainly greater than the sum of its players. By maintaining solid discipline and listening to their coach, the 2018 Patriots were able to overachieve and beat playoff teams that arguably had more talent on their rosters.

It’s easy for investors to get caught up in the latest news headlines. Like most of the news broadcast, the market watch segments seem to focus on the negative and ignore the bigger picture. Developing and sticking to an investment strategy is critical for long term success. Instead of worrying about a particular market sector or individual stock, focus on the things that are within your control. Maintaining a diversified portfolio, reducing expenses, minimizing taxes, and maintaining investment discipline are all things that an individual investor can control regardless of external factors. But perhaps the most important aspect of a good investment strategy is aligning yourself with a reputable financial coach or advisor who can help circumvent tendencies to chase returns or run for cover in emotionally charged markets.