The inevitable happened. The New England Patriots once more won the big game, but the game itself was surprising, and with many events in life, lessons can be learned. In the Investing World, if you aren’t learning, you are fading away. So let’s pull apart the investing lessons that we investors can take away from the big game.
Offense is great, but you better have a defense.
The Rams and the Patriots were both known for their high-powered offenses. The Rams with their powerful ground game, and high octane receivers came in as the second ranked offense. Brady and the Patriots have always been a strong offense. But each team also sported a great defense. And the game was a defense slugfest that hamstrung the offenses of both teams. The game was tied at 3-3 through the third quarter. And the best defense won the game . . . Pulling away in the fourth quarter, and finally providing the interception of Goff that was the final nail in the Rams’ coffin.
Investing can draw similar parallels. Prior to Q4, it was an offensive game. Investors were simply looking for upside gains, bringing in great returns without paying as much attention as necessary to risk management. In Q4, risk management was the defining feature between average investors and good/great investors. People that put in stop losses, diversified their portfolios and pared overvalued stocks from their portfolio survived Q4.
It was a game of attrition.
The Patriots weren’t scoring, but they were holding on to the ball longer each drive, and winning the time of possession stat. By the fourth quarter, the results were clear. The Rams defense had worn down, and the Patriots were able to find more success and points. There were no flashy plays, just grinding drives that took their toll on the defense.
Investing is a grinding activity. It is not sufficient to put a long term strategy and walk away. Far more important is the activity of monitoring the portfolio, and ensuring your money is working for you. Is your cash account deployed effectively? What moves should I be making today! It is a grind, but without doing the work, you won’t make the same returns. And remember, the long bomb is great, but you have to win the game. That involves a long term strategy.
The Patriots made adjustments in the fourth quarter.
This was the key to the drive that netted the only touchdown in the game. And when they found a play or matchup that worked, they went back to it relentlessly.
Making adjustments to your investing philosophy is also important. Sometimes, your strategy does not hold water anymore. Trading flows may have changed. For example, ETFs may have slightly increased risk due to their overlapping holdings. Investors may need to adjust their strategy to account for this.
But when you find something that works for you, you should follow that new strategy and deploy it time and time again. Getting an unbiased process that you can turn to time and time again is the key to long term success.
The Patriots’ brain trust has been here before, and they made the difference.
Sean McVay, the Rams coach is special. He is only in his second year of being a head coach, and he has turned around the Rams franchise to where they are in the Super Bowl. However, he was taken to the cleaners in the Super Bowl by Belichick, Brady (who is a de facto coach) and McDaniel (the Offensive Coordinator). Both teams were well prepared, but as the game went on, the Patriots pulled the right levers, and adjustments. Ultimately, this was the difference.
Likewise, investors need to gather as much experience as they can. Each twist and turn in their investing life is a new lesson. At the end of the day they can use this learning to survive and thrive in the market. For example, knowing that there will be an end to the carnage of Q4, and to start looking for buying opportunities is a great lesson to learn.
Finally, sometimes boring can be good.
Let’s face it. This was the worst Super Bowl in memory. It was dull with almost no flash plays until the fourth quarter. Particularly in contrast to the divisional games two weeks earlier, this was really painful to watch.
Heading into the fourth quarter last year, utilities and cash were some of the few spots that looked resistant to the relentless downdraft in the market. Boring perhaps, but also, it was a port in the storm to tide over to wait to return to the market.
With the NFL season now in the books, investors now have a little more free time before it starts up again in August. So time to find the opportunities, and put your money to work!