Lessons from the playing field: What sports can teach investors

By David Wismer

With everything going on in our personal and professional lives—and the constant flow of news—sports fandom can offer a welcome respite.

We are in a time of year when sports offer a rich smorgasbord of options—something for everyone. The Final Four of March Madness is just days away. A new MLB season has begun. Top pro basketball and hockey teams are preparing for playoffs. The Masters tournament will kick off golf’s majors season. The NFL draft arrives in late April. And let’s not forget high school and college spring sports seasons, as well as this summer’s highly anticipated World Cup, which will be hosted in North America. (Apologies if I haven’t mentioned your favorite sport!)

I recently listened to an interview with Jerry Seinfeld, a huge New York Mets fan, who said sports are essentially a “closed system,” often immune to what is going on in the outside world. But he also noted that sports fandom can “reveal the undercurrents of one’s life,” including whether people tend to approach things positively or negatively.

Sports can provide valuable insights for 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 financial markets.

What sports can teach us

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. … 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

Many financial advisers have told Proactive Advisor Magazine 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 applies 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 an 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.

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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.