By Justin Carbonneau (@jjcarbonneau) —
The NFL playoffs have been one of the most exciting and competitive set of playoff games I can remember. There were 281 total points scored in the six games below, but in five of those games the margin of victory was just 3 points (most of these were game winning, last second field goals to win the game). I thought it might be fun and educational to use some of characteristics of winning teams and relate those to habits and techniques around successful investing.
A Balanced Team
Tom Brady is the greatest quarterback of all time, but even with all of Brady’s greatness, it wasn’t enough to get him and the Bucs back to the Super Bowl. In their loss to the Rams, you could never count Brady out, but you could also see how much more balanced and diversified the Rams were as a team.
You can relate this to investing.
Investors should have exposure to multiple asset classes and strategies, and different types of stocks working for them. You don’t want everything to be riding on that one great stock or one top performing fund because there is always a chance in the markets that things can go badly (especially since we know things in the market can get overheated). Getting production out of a diversified group of good assets over time is one of the winning ingredients for many investors.
Managing the Clock
Many of these games came down to the very end, and managing the clock and being strategic with timeouts was very important in some of the victories.
Investors also should be paying attention to the clock.
Investing as early as possible, making catch up contributions in retirement if you need to save more, and even thinking about portfolio and allocation changes as you near or enter retirement. These are examples of the clock investors need to be paying attention to and thinking about as they try to maximize their investments and make their money grow over time.
Avoiding Big Penalties / Mistakes
While watching many of these games, I thought they were below average in terms of the number of penalty flags. My intuition was correct. For the entire 2021 NFL season, teams averaged 102 penalty yards per game (source here). In the playoffs, the average number of penalty yards was 82. So, these playoff teams had 20% less penalty yards compared to the regular season.
But there were some big mistakes that influenced the final outcome. For example, watch the end of the Dallas vs. San Francisco game where they didn’t get the ball set in time for the referee to touch it before the clock ends.
As Warren Buffett and Charlie Munger have often shared, a large part of their incredible investment success comes from avoiding big mistakes. To avoid making mistakes, the duo stay within their circle of competence and stick to investing in what they know. They also understand, acknowledge and think about their mistakes so they can learn from them and not make them again.
In investing, there are many mistakes’ investors can make, so training as best you can to avoid those mistakes can be very important in maximizing your success. Not being overly emotional when it comes to investing, avoiding checking your investments too often, excessive trading and not being overly confident when it comes to your decisions or in making short term predictions are essential. These are just a few of the mistake’s investors should try and avoid that can help improve their outcomes.
Being Aggressive at the Right Times
At some point in all of these games, given how close and competitive they were, teams had to take risks. But the timing of those risks and aggressive play calls had to come at times during the game when it made sense. NFL coaches have plays and schemes for every down and situation, but at points during the games you knew teams had to make an aggressive move, either on offense or defense, because that play could impact the outcome of the game.
In investing, there are points in time when an active investor can and should get aggressive. For instance, big down markets, while painful, create buying opportunities – investors can rebalance into the weakness with parts of their portfolio that have performed better or even take excess cash that you don’t need for the foreseeable future and deploy it opportunistically.
Do Your Homework
I love that Rams head coach Sean McVay can recall any play from any game when tested. Maybe he has a photographic memory, but I think part of it has to do with his level of preparation. Once he knows the information; like where the team is on the field, the down and the number of yards to a first down or to the end zone, he is thinking about the play call he made or would make and can remember back to it.
If you are the type of investor who is going to actively invest to try and outperform the market, you have to be prepared to do your homework, build your knowledge of the markets and companies, ETFs and investment strategies. This can take time and dedication, but over time those investors who put in the work will learn from those experiences. You may not remember every trade or decision, like Sean McVay can with plays on the field, but you’ll know you have given yourself a chance for success because you put in the time and effort.
No Championship Game In Investing
The Super Bowl is less than two weeks away. I’m not a Rams or Cincinnati fan so I have no skin in the game and I am not going to make a prediction on the game because it would be pointless to guess, but if the game is anything like the games in the playoffs so far, we’re in for a treat.
And just remember, your investing game plan doesn’t end after the season’s championship game because successful investing involves taking a long-term view and continuing to learn and improve over time.
Justin J. Carbonneau is VP at Validea & Partner at Validea Capital Management.
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