Current market environment performance of dynamic, risk-managed investment solutions.
By David Wismer
I have always been a big sports fan, something I share with millions of Americans. Beyond the entertainment value, the lessons from the playing field often mirror those in investing: preparation, teamwork, adaptability, and perseverance through wins and losses.
Sports can provide valuable insights for life and any endeavor that requires focus and discipline. That’s especially true for those who have actively participated in sports at any level, but I believe it is equally true for fans. The same skills that help athletes and teams succeed—resilience, strategic thinking, and the ability to adjust to changing conditions—are also critical in navigating the markets.
What sports can teach us
For those of us of a certain age, who can forget legendary announcer Jim McKay’s words introducing what became an iconic program for over 30 years: “Spanning the globe to bring you the constant variety of sports ... the thrill of victory ... and the agony of defeat ... the human drama of athletic competition. This is ABC’s Wide World of Sports!”
Those words captured the drama and emotion of athletics—qualities that make sports memorable for fans and participants alike. But beyond the spectacle, sports can also build important skills that carry into many areas of life, including investing.
You can find numerous articles from noted psychologists that outline the many attributes sports can help us develop, including mental toughness, accountability, leadership, socialization, and empathy.
I especially like psychologist Carol Dweck’s concept of a “growth mindset,” which suggests that success and failure are not the end in themselves—they are both part of the learning curve.
A blog post from the Association for Applied Sports Psychology explains, “Growth mindset is a mental schema that has the power to influence our thoughts, decisions, and behaviors. The positive implications are many, and in a 2009 issue of Olympic Coaching Magazine, Growth-pioneer Carol Dweck identified that a growth mindset allows athletes to ‘embrace learning, [as well as] welcome challenges, mistakes, and feedback.’”
Says another blogger, “Here’s something I remind myself often: losing doesn’t mean you’re a failure. It means you’re trying. The greats have all stumbled—Michael Jordan, Serena Williams, you name it. The trick is learning from the fall instead of fearing it. …
“You don’t have to be an athlete to feel it. Maybe you played a little in school, or maybe you’ve just cheered from the bleachers. Either way, sports leave an imprint. They shape how we face challenges, how we work with others, and how we grow.”
Using the language of sports to frame investment perspectives
In the interviews and practice management articles we have published for Proactive Advisor Magazine, many financial advisers have said they use sports analogies to help explain important investment concepts to their clients.
These often come from football, baseball, and basketball, but some advisers draw inspiration from individual sports—even bowling! A common theme, especially from football, is how “defense is often more important than offense.”
One Texas-based adviser says he tells clients that investing “is very much like a football game—and you know we are real football fans here in Texas. You have to go through four quarters to find out who wins the game. Anybody—even the best teams—can be behind at halftime, or after the first or third quarter, but that’s not the point. The point is that the full investment cycle is a bull and a bear market and everything in between. Only after you get through those two [parts of the cycle] can you determine how effective you were in your investment process.”
I also like the perspective from a financial adviser who had a stellar baseball career, making it to the professional minor leagues:
“Athletics taught me a lot of great life lessons: the importance of preparation, how you must work consistently toward your goals over time, and why it is necessary to set long-term objectives that will move you toward achieving what is most important to you. …
“One analogy I use relates to how I form a working relationship with clients and, in turn, with my trusted outside resources. I tell the client they are like the owner of a professional sports team. It is their hard-earned money and, ultimately, they have the authority and the responsibility to make the decisions.
“But they have hired me as their general manager and head coach. It is my job to do everything in my power to put together a sound plan of action and to assemble the highest-quality coordinators, assistant coaches, and players to help their team achieve consistent success. For example, I conduct an extensive evaluation and selection process of third-party money managers on behalf of my clients. I will recommend the use of those that fit the investment needs for a specific client. I think this simple analogy of assembling a great team makes a lot of sense to people.”
Having the right “team” for an investment portfolio
The concept of building a strong, balanced team also relates to sound portfolio construction.
Many advisers have talked about using a combination of actively managed strategies that are meant to work together (with different performance characteristics) as a cohesive portfolio over full market cycles.
As one adviser puts it, “A cornerstone of my active management approach is offering a very wide potential combination of diversified strategies. In line with this overall risk-managed active approach, I will generally use several different noncorrelated strategies, in several different asset classes. While not every strategy ‘will fire on all cylinders’ at the same time, that is exactly the point.”
Jerry Wagner, president of Flexible Plan Investments (FPI), has often written about this same aspect of diversification. He explains, “If every strategy in a portfolio is going up or down at the same time, there is a high probability that the portfolio is not properly diversified.”
He expanded on FPI’s philosophy in a recent interview with The Wealth Advisor:
“‘My theory has always been that there are no silver bullets, some single strategy that works for everybody all the time,’ Wagner says. ‘Instead, you have to have multiple strategies in a portfolio. You have to have adaptive strategies.’
“That adaptability is hard-coded into how the firm builds its models. ‘We created all of our strategies so that they can evolve over time and take in new information, readjust themselves and go forward again,’ Wagner notes.
“The continuous evolution is designed to help manage market risk and seeks to prepare portfolios to grow stronger from stress. Wagner has taken inspiration from Nassim Taleb’s concept of antifragility—the idea that systems can learn and improve from shocks rather than just withstand them.
“‘We’ve put a lot of time into supporting antifragility and the ability to monitor a client’s portfolio for how antifragile it is,’ he explains. ‘You want to build into your strategies the ability to evolve with the market on their own.’”
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For both sports fans and investors, it’s easy to get caught up in the emotions of day-to-day action. But in the end, it’s a long season for both. What matters most is having a trusted and capable team in place to help reach the ultimate goal.