Why you should invest like a golf pro
3 ways The Masters can make you a better investor this weekend
Introduction
The Masters is one of those events that draws you in every year. Even if you aren’t a massive fan of the sport being played. With that in mind, I thought I’d point out three ways your investing game can learn from the way elite golfers tackle Augusta. As it turns out, the principles of winning the green jacket and winning in the stock market have a fair bit in common.
Rule #1: You Don’t Win The Masters In One Round
Golf’s four round format lessens the chances that someone will have one freak round and win the whole thing. It also changes the way the players play the game. Because when you have 4 days in front of you, you don’t take crazy risks until you absolutely need to.
Just imagine for a second that the Masters was over 1 round instead of four. I think you’d probably see players taking much bigger risks from the start:
Instead of chipping their ball back onto the fairway, they’d try and hit it through the tiny gap in the trees every time.
Instead of laying up, they’d take on the risky shot over the water
And so on…
Doing that in a four day competition would leave you with a great highlight reel. But you’d probably get it wrong far too many times to make the cut. Now consider that investing takes place over four decades, not four rounds. Yet a lot of investors treat the stock market like it’s a one shot game. They swing for the fences with every pick. They run hugely concentrated portfolios and they might even use leverage to juice their returns.
This approach might give you a few stories to tell. But you’re unlikely to last for the time you need to.
Rule #2: Mistakes Are What Kills You
Want to know the difference between a “bad” and a “decent” golfer? Funnily enough, it isn’t the number of good scores you get. It’s actually the number of really bad scores you avoid.
The same is true at the top of the game. One birdie at Augusta won’t win you the green jacket. But even one bogey might just kill your chances. Before I go any further with this one, it’s important to state the big difference between your stock market returns and your golf scorecard:
The best score you can get on a golf hole is 1. In the stock market, the best return you can get on an investment is unlimited. On the flip side, the worst result you can get on a golf hole is unlimited. While the worst result you can get on an investment is zero.
That's an important difference. But you must try to avoid zeroes as far as is possible.
The surest way is to have a process for sniffing out companies that are a) fraudulent or b) not anywhere near as healthy as their headline figures suggest. If you avoid just 1 or 2 of these ‘near misses’ in your investing career, the difference in your long-term returns will be fantastic.
Rule #3: Even The Pros Need A Coach
It’s ironic that the world’s best golfers take a lot more interest in golf lessons than the ‘weekend warrior’ types who need them most. A lot of hobbyists (like my colleague) avoid getting golf lessons and think they’ll just figure it out themselves. Then they finally take the leap and wish they’d done it ten years ago. I’ve found that the same is true with investing.
At first, you need to get the basics of reading accounts and being able to analyse a company’s financial and business strength. That’s the equivalent of your grip, stance, and basic swing. But education doesn’t stop there.
The best investors and analysts never stop learning. Instead they’re always seeking new experiences, new skills and new ways to apply their existing skills. I hope that my Substack will help by reminding you of some useful investing tenets each week. But if you’d really like to sharpen your skills, why not consider one of my self-paced online courses?
Even if you’re a hardened stock analyst, you’re sure to find at least one nugget from my 25+ years experience that improves your game.
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