As I wrote this, I was enjoying coverage of the 81st Masters. It’s often said that only golfers and gardeners can enjoy televised golf; however, I think anyone with an interest in excellence, whether athletic or otherwise, can enjoy the precision and emotional control with which the best players play the game.
To call myself a duffer would diminish duffers, but I can get around the course with minimal damage to myself or my team mates. On the rare occasion (when everything comes together), I can make a beautiful shot – and I can even get the ball in the hole in the desired number of strokes. But at the end of the round, it’s the mistakes I remember most.
Most amateur golfers can sympathize with my experience of hitting a ball in the rough (or woods) only to quickly hit two or three more shots that just make things worse. That’s when I find myself – cursing and sweaty – farther from the target and with a ballooning score card.
Professional coaches tell me most of their instruction is focussed on teaching students how to recover from bad shots rather than improving their swing. This is one of the best ways for weekend golfers like me to bring their score down.
Phil Mickelson, Sergio Garcia and Jordan Speith don’t play perfect rounds. They frequently hit shots that don’t end up where they want them to go. What separates them from the rest of us is their ability to recover. This type of play usually involves selecting shots with limited risk.
When professional golfers hit a bad shot, they re-evaluate, re-target, select a different club (sometimes) and continue playing. And let’s not forget how often they consult their caddies for advice.
Investing, just like a round of golf, rarely goes as planned. Markets cannot be predicted and events around the globe can cause activity you can’t control with an investment-picking strategy. Most investors who manage their own plan without the help of an advisor react to financial downturns in two ways: pull out or increase risk. Pulling out can be detrimental because losses become ‘realized’ and when the market turns around, investors aren’t in place to potentially realize the gains.
When your investments take a dip, and they always will, it’s the time to re-evaluate – resisting the temptation to take an action that might worsen the situation may be the best decision.
Shifting to an asset allocation with more risk is the other alternative non-advised investors often employ. If the portfolio has suffered losses of 10, 15 or even 20% in a given period, they may abandon low volatility investments seeking higher risk equities in the hopes of a lucky break that can recoup their losses.
This is like the golfer who ends up in the trees on a par 4. Options on the second shot may include trying to go for the green through a narrow opening or hitting safely onto the fairway. The reward in the first scenario is the chance to putt for birdie, but the risk is a high likelihood of ricocheting off a tree and ending up even deeper in the woods (and potentially taking even a bogie out of play). The reward in the second scenario is a clear view of the green and a good chance of making par.
In most cases your caddy will recommend option two and suggest looking to the next hole for a better chance at birdie. Similarly, a professional advisor who understands your long-term goals will assess how, or even if, a downturn in the market will impact your financial security plan. In many cases, investors have years to recover from a market dip. A long-term planning goal and waiting for a turnaround may result in significantly better returns than changing strategies – so taking no action might be the best option.
In both golf and investing, there will always be an element of unpredictability. Decisions based on emotions rather than a sober examination of the facts can put you in a worse position. Developing a strong foundation with a plan and making a habit of reviewing that plan with a trusted advisor can help you master the game.