On Pointe – Wealth Management Edition
Football and Portfolio Management?
How Football Describes an Investment Advisor’s Role in Portfolio Management…
I love football. College, and high school, and of course I enjoy watching the pros. Especially the Ravens!
What draws me in is the amount of time coordinating the players into plays to achieve certain goals and objectives. I too, spend an enormous amount of time studying and coordinating portfolios to achieve goals and objectives. And just like football, not all plays work out as intended… which is why there is a constant need to adjust.
Yes, I’m going to draw the correlation between managing an investment portfolio to managing a football team.
The parallels in my view are many.
First, let’s have some fun with knowing who is on TEAM Investment Portfolio.
There’s the owner (portfolio owner/client).
The coach is the Financial Advisor/Investment Advisor.
The players of our team are the investments.
The opponent? The Markets!
What’s fun about this example is how true it appears to be. The “players” are rotated on and off the field based on whether the team is on offense or defense. Even when the offense or defense is on the field, players are rotated based on their skill sets for the specific plays the coach is calling. Not dissimilar to an actively managed portfolio of investments?!?!
For example, I often talk to clients about playing “offense” or “defense” and that we may need to approach our investing in the same way. Much like football, it does not make sense to try running an offensive play when you’re on defense, and vice versa. Your advisor or portfolio manager should know the difference as certain investments may be more “defensive” and so forth. You may be thinking “This is way too obvious” and you’re right!
So, let’s dive deeper…
Another take is when to run the more aggressive plays on offense. What this means is there are certain times in the market, you may be able to be more aggressive with your investing (as your risk tolerance allows). For example, during strong bull markets, you may be able to take “shots down the field” as the markets may be more forgiving. Conversely, in rough markets, your “fliers” may do you more harm than good. Again, it helps if you know the difference in the levels of market risk.
What about defense?
Proper defensive strategies have much more to do with risk tolerance than anything else. Yes, there are times when my clients who can accept higher levels of volatility will be positioned defensively. But the difference here might be to keep these defensive positions shorter-term and easier to exit when conditions become more favorable. While more conservative clients may need more permanent solutions to keep volatility low.
And what about the owner of TEAM Investment Portfolio?
Much like professional football, the owner is, well, the owner. The owner does set the tone by providing their goals, objectives, and risk tolerance (in football this may translate to draft and free-agent strategies).
Some Owners are more involved while others allow the coach the flexibility to use their experiences to guide the team.
I’ve found that overbearing ownership tends to mute the performance of their teams. Overriding executive and coaching decisions rarely makes for a productive, winning culture. This is not to say that the “hands-off” owners don’t hold their staff accountable as most do. Sometimes these “hands-off” owners are the owners who build consistency in their “winning” ways.
How about the Coach/Portfolio Manager?
They are paid to make the tough calls. Such as when to bench the quarterback, go for it on fourth down, or simply punt the ball away. They may have to bring in new players or even change offense or defensive philosophies. No easy task but may be necessary for the long-term success of the team (or portfolio).
And the players/investments?
There are a lot of different skilled players that make up a football team and your portfolio is no different. From stocks, ETFs, bonds, money market, and alternatives there is a lot that can be put into the mix. Each of these investments offers different characteristics and risk profiles that can aid the owner’s portfolio. The key is finding the coach to put it all together!
While I hope you had some fun with this exercise, I do hope you took away some important concepts. Here are three things to consider for your investment portfolio…
First, know your coach’s philosophy. Your financial advisor should have a philosophy they adhere to. They should be able to explain how they operate and how they make decisions within the portfolio. If you want to know mine, here’s the link for Invest in Strength which helps explain how Alpha Pointe Capital views investing.
Second, is there flexibility within the “coach’s” strategy to play offense or defense? Sometimes accumulating a little extra cash in a portfolio may be enough but other times may call for stronger defensive measures. However, flexibility is key to riding through the many peaks and valleys more comfortably which is consistent with the strategy.
Many financial advisors offer clients’ portfolios that are “set it and forget it.” We don’t believe in this. Much like in football, every play, every game, and every season is different BUT there are similarities. Maintaining a flexible approach based on market conditions will allow us to take advantage of market biases or position for possible opportunities.
Last, you need to know what your goals are. It is a much different game playing for the Championship than simply playing for a winning season. This is an important consideration as you interview advisors that match up to your goals. There are different strategies to achieve more aggressive to the simplest of goals.
Hope you had fun with this week’s On Pointe… as readers know I do like to bring in analogies, especially sports and food! Oh, and the weather (if you read the latest On Pointe Wealth Management).
Take care,
James S. Gibbons CPFA
Alpha Pointe Capital-Founder/Wealth Manager
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Registered Representative of Thurston Springer Financial and Investment Advisor Representative of Thurston Springer Advisors. Securities are offered through Thurston Springer Financial, Member FINRA, SIPC. Advisory services offered through Thurston Springer Advisors, an SEC Registered Investment Advisor. Alpha Pointe Capital is a DBA of Thurston Springer Financial and Thurston Springer Advisors.