ON POINTE – WEALTH MANAGEMENT EDITION
4 Ways to Approach a Major Golf Tournament like you might do with your Investment Portfolio.
I don’t regularly watch golf but the Masters I make time for all four rounds…
There is something special about this golf tournament. For me it’s the history, tradition, and the anticipation to find out who gets to wear the green jacket.
The markets themselves carry a tradition and history as well. The similarities can be as consistent as Tiger Woods wearing red on Sundays.
The other fun part of the tournament is the risk and reward decisions these golfers may make on most every shot. No, I’m not talking about the decision of eating a hot dog on the course. Possibly risking an upset stomach..
The professional golfer takes calculated risks. Successful risks may find themselves on the leader board. While others find despair, as the course is unforgiving for the slightest mistakes.
Oh, and you guessed it! I’m going to figure out a way to tie in golf with portfolio management…. non-golfer readers will understand these concepts as well!
Augusta National Golf Club is beautiful. Yet, it is one of the most challenging courses to play. The course forces the golfer to think through each shot.
Distance, angles, surfaces, and approaches are some of the variable’s golfers will negotiate.
Can’t forget about the weather… wind, rain, and storms can add to an already arduous challenge.
These many variables do have some similarity to the daily grind of the markets.
The variables within the markets are plentiful. Investors must understand the potential risks and rewards before making their move.
So, let’s look at how an analysis for a round at the famed Augusta National might look the same for investing.
First, weather conditions or in our case, overall market action.
Knowing the weather conditions is a key to how you’ll manage your game. The golfer will need to adjust to wind, dry or wet conditions. The game will be easier if the weather is sunny with slight winds. Much harder in high winds and storms.
Hmm… as an experienced observer and active investor, I want to know the market’s conditions. Is it volatile? Propensity for large selloffs? Excessive negative news flow?
Or are the markets gradually rolling higher? Portfolio values expanding? Less than usual negative news?
Sure, you can play/invest in either market. But knowing the general weather is an important first step. For example, if you have wind at your back and other favorable conditions you might take a riskier shot. With the wind at your back it might be a better time to try and “go for it” so you can find that elusive birdie.
If the conditions are less favorable it might be best to play a conservative shot.
You may want to lay-up on hole #13 “Azalea”, so you don’t roll into Rae’s Creek. Thus, turning a potential birdie opportunity into a bogey or worse!
No one likes to “lay up” but sometimes it’s wise. When investing, it may mean a lot of things… raise cash, invest in bonds, change your portfolio allocation.
in my experience whether you’re investing or playing golf, it is all about risk and reward.
The weather golfers will encounter determines the main strategy. Again, very similar the markets as they determine our strategy.
The second… Adjustments. What do golfers do to determine conditions while out on the course and adjust?
Checking the weather and looking around may offer you the big picture. But conditions change and the “forecast” may not tell the whole story
How many times have you heard the news talk about how great the markets are, yet your investments may not be?
Golfers and investors need to be aware of what is happening “below the surface”.
During the Masters, you’ll see golfers throw blades of grass in the air to determine wind direction. This is to affirm their observations.
How about before they even tee up on “Tea Olive” to start their round?
These golfers spend hours at the practice range. Sure, they warm up and fine tune their swing. But watching how the ball in flight may pay dividends on the course. (Yes, pun intended).
How about the practice green? Your average “hacker” foregoes the practice green preferring to practice their “long ball
Not these pros. The info you get from putting green is invaluable. Are the greens playing fast? Slow?
There is a lot more information that these golfers need to take in. Sometimes they need help… this is where the caddie steps in.
Can’t forget the caddie. The camera lenses focus on the player, but one of the best “advisors” a golfer can have is their caddie
This third point is crucial
You’ve seen on TV when the golfer is trying to figure out their next shot. They often look to their caddie for guidance. Not only do most caddies have many years of experience but they also know the golfer inside and out. They know the golfer’s strengths, weaknesses, personality, and mindset.
If you ask a professional golfer who their “go-to” source out on the course is?
It’s their caddie.
Wow… perhaps your financial advisor is your caddie. Your financial advisor should know your risk profile, your goals, and a lot of very important information to help guide you through the course of retirement.
Last, shot selection is at a premium when it comes to this golf course.
Not only knowing which club to hit with or how you should hit the ball is important. You need to put yourself in the best position possible.
Whether you “fade” your tee shot or your forced to “punch” out, you need to know when to use these very different shots.
In the world of investing, it could be the difference of purchasing a stock, an ETF, mutual fund, or an annuity. Each of these investments is very different.
And have their own different risks and potential rewards.
But some securities do better in certain environments, like golf shots.
While most investors seek “pars and birdies” it’s unfortunate that bogeys or worse do lurk from tee to green.
I’ve found it’s best to play smart, understand the conditions, and to take each hole one shot at a time
Take care and enjoy the golf!
James S. Gibbons
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