I love sport. I’ll watch anything that is played well and at footy finals time we get to watch the best play the best.
Obviously, with my association with Port Adelaide Football Club, I’m a mad AFL fan. While I love watching remarkable sporting achievements from the stands, I also marvel at the focus, training and performance of the athletes and the teams. How they prepare for success. Their success is built on some key principles and strategies which, you soon realise, can easily be adopted by all of us to build a winning financial plan.
Successful investing has similar principles
Successful investing is based on similar principles of an elite sports organisation. In most cases their stars can provide a foundation for success, but it’s the troops who make the difference… it’s the same with investing.
Whether it’s the Hockeyroos, Diamonds, Opals, most elite sports teams are built around stars who are world-class. They’re in a class of their own.
These superstars provide an important foundation for winning and a consistency for success. They deliver consistently high-quality performances and, likewise, investors need to put elite star investments at the core of their portfolio and build the rest of their group around them.
That’s not to say that after that you can throw darts at the board in the hope of landing the next star; speculating is a dangerous game when investing. However, if you do have quality investments at the foundation, other potential rising stars can complement them, rather than be relied on to carry the portfolio’s performance.
Having said that, don’t underestimate the troops. Those second-tier investments in a portfolio can come with a little risk and inconsistency, but they often produce stronger upside from a low base.
I reckon I’ve become a better businessperson and investor from my short time observing elite sport through AFL. Hopefully taking on board a few of these lessons, you can become a better investor from observing elite sport too.
Constantly benchmark for success
Elite athletes and sports teams constantly benchmark their performance against competitors and themselves. While they obviously want to win, simply being better and showing constant improvement is just as important. They set targets and milestones, which reflect stages in their preparation or different times of year as they build up to an event.
Again, it’s the same with investing. Measuring performance of the entire portfolio and breaking it down into individual investments. Benchmarking their role in achieving an overall result and whether their performance is as good as the competition. If not, then make the necessary changes.
Focus on the game in front of you
The old coaches’ cliché is to ‘take it one game at a time’. And while this sounds like a bit of a cop-out to avoid looking too far ahead, it’s a rock-solid approach that carries weight in investing too.
As most athletes will tell you, there’s not a lot of value in dwelling on the past or looking too far into the future. That’s because to deliver your best performance you need to be completely focused on the game in front of you.
The same goes for smart investing. Don’t anchor your investment decisions in the past – whether that’s the price you paid for something or the past performance of a company – because that information rarely matters. Instead, put your energy into making the best decision for the future based on the situation you’re in today.
Yes, have a big-picture investment strategy to produce a ‘finals’ like return, but it’s the little immediate steps in between that provide the journey to the end goal.
Recruit coaches who complement your skill set
A common theme from most post-match/race interviews is athletes thanking their coaches and support crew for playing a crucial role in their success.
Just as every successful athlete surrounds themselves with a team of coaches and assistants, every investor should leverage the expertise of people who know parts of the investing world better than they do. This is particularly important for casual investors, who often shy away from seeking professional advice, even when they’re unsure about an investment decision.
It might be paying for property inspections or getting the guidance of a sharp equities adviser. Whatever the case, it’s crucial to recognise your strengths and weaknesses and use experts who complement your skill set. And, if you can’t afford the very best financial coach, look for those who have worked for, and learnt from, the best.
Develop a style of play to suit your team
You need to find an investing style that suits you, similar to how in sport a basic but aggressive style can be successful against the slicker, sophisticated game plan.
This means building a portfolio according to your risk profile, age and goals. Recognise how comfortable you are taking on risk, plan your investments to deliver the financial support you need at different stages of your life, and set firm goals to work towards and guide the way you invest. Only once you’ve bedded down this profile and worked out an investing style that suits should you pick up the financial ball.
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