I’m an avid sports fan – especially football. It also seemed to strike me that there are many similarities to the process of successful investing and the world of sports. Qualities such as patience, proper preparation, having a game plan, discipline are all shared concepts between the two. Generally speaking if one can master these areas, one will almost surely find success. As many of us know, this is much easier said than done.
This analogy struck a chord with me a few weeks ago when I was watching the Jets play the Ravens. The Jets (and Coach Rex Ryan) had committed to game plan that consisted of pounding the Ravens with the run game, stay conservative on offense, and let the defense win the game. It became apparent as the game played out that this plan might be less than effective. The Jets coaching staff made little adjustment and eventually lost the game. The following week Rex Ryan was vilified in the media for being stubborn to the original game plan and failing to adapt to the flow of the game. This is where I see a striking similarity between the game and the process of investing.
Whether we realize it or not, we all develop a personal style when it comes to investing. If you professionally manage money or are an individual investor, it is wise to develop an investing process that provides guidance. The more defined and disciplined the approach, the more success you will likely enjoy. That concept seems pretty basic and obvious. But here’s the challenge – what happens if current circumstances work against the pre-defined process or game plan? We have all been taught that consistency is a highly favorable trait. Individuals who stay true to their word are honorable and those that change their positions are considered flip floppers.
However, it took me a long time to realize that when it comes to investing, we must be flexible to our approach. The experience of the 2008 market taught us that things we thought were true may be changed, altered, or eliminated. This was a very difficult thing for me to reconcile. Many of us have spent a great deal of time and energy developing a sound investment process. I wasn’t ready to completely abandon those beliefs because the market was changing. I realized that it was crucial to indeed have a disciplined approach, but to stay flexible within that approach allowing for adjustments to be made as necessary. The ability to change one’s mind is truly enlightened. I strongly believe that most successful investors practice this – even if it isn’t overtly stated. Their willingness to change their positions given proper evidence allows them to be free of anchoring beliefs.
On a final note – interesting that the following week the Jets decided to open up the offense with good results.
