How do you pick your team?
By: Andrea Bulen
As most of you probably did, my family watched the Super Bowl this year. The event itself provided for a nice topic of discussion in our household for the two weeks leading up to the game. Of course we all picked our winner. Some of us put a bit more thought into it than others.
My husband, for instance, chose the Seahawks. His reasoning: “As a general rule, I prefer birds to horses. Go Seahawks!” My husband is not much of a sports fan. I, however, love sports. I know the teams. I know the players, and have a solid opinion about most games. I chose my winner based on other facts, namely Payton Manning and his offensive line will be able to blow through even Seattle’s staunch defense. I know, I know, defense wins Super Bowls, but with the maturity of Payton Manning at the helm, they’d be able to overcome Seattle’s defense.
Well, we all know how that turned out. My husband has been gloating since Super Bowl Sunday and I have lost all credibility of being a football guru in my house.
I recently attended a conference where the commentator was speaking on how his firm approaches investing and their forecasts for market performance for the coming year. He had a lot of detailed charts and statistics, some seemed more legitimate than others. Although he was clearly very smart, and his charts were interesting, I couldn’t help but think that some of the less legitimate comments reminded me of how my husband picked his Super Bowl winner. Those comments included, “As January goes, so goes the year.” “ Years ending in 5 are winners.” “Sell in May and Go Away.” This gentleman concluded that 2014 was going to be quite volatile, but that 2015 would be a breakout year for the stock market. Partly because it was a year ending in “5”!
At Shakespeare, we approach investing from a different view point. We’re not sure exactly what the market will do tomorrow, we’re not sure what the market will do in 2015 (but if it does do well, we ARE sure it isn’t just because the year ends in 5!).
What we do know is that over time, a well-diversified, low-cost, tax-efficient, strategically rebalanced, portfolio will perform well for the individual investor. We structure portfolios, much like a well-structured football team. It isn’t good enough, or even likely, that you’ll pick the next star quarterback in the draft. You’ll need a deep bench. Injuries are so common and so unpredictable, that you need backups for your backups. You need a player that will step up when another player is down.
Collectively, you want the best team over time. Of course we’d like to have every fund in our portfolios perform well all of the time. That is just not realistic. That's why we build our portfolios so that when one area of the market may be down, the other area is treading water or hopefully producing a modest return. Every fund has a purpose and every fund will have its day to carry the portfolio.
I may not have picked the winner on Sunday, but I am confident that in the long run, having a well-structured plan and sticking to it will produce more winners than those who pick their teams based on random indicators or emotions.