What Watching Ohio State Football Taught Me About Investing
From the Mailbag:
I know Wealthy Retirement is one of many great resources to learn about retirement and investing. Books about Warren Buffett and other successful legendary investors have been a great help, too. But where else can one go to learn about investing strategies? Is it possible to benefit from lessons learned in other industries or aspects of life?
Investment lessons are all around us. Many investors, like Marc, have learned some of their most significant ones from relatives. Others have learned them from careers outside of finance.
Most recently, I learned an important investing strategy while indulging in my favorite pastime: watching Ohio State football.
Last year, Ohio State was college football’s unconventional Cinderella story. They went from two glass slippers to barefoot… all the way to the ball.
Ranked in the top 10 during the preseason, the team suffered a seemingly catastrophic blow when starting quarterback Braxton Miller was injured. The team was forced to rely on inexperienced backup quarterback J.T. Barrett.
Then, after a devastating loss to Virginia Tech at home, nearly everyone in college football wrote them off. No one believed that there was a chance for the Buckeyes to come back as contenders for the first national championship playoffs.
But the Buckeyes pressed on, and Barrett improved. However, after he broke his ankle near the end of the regular season, the Buckeyes were forced to rely on an even greener quarterback, Cardale Jones. College football experts wrote off the Buckeyes again. If it hadn’t been for their coach, Urban Meyer, they might have been right.
Ohio State persevered, winning the Big Ten Conference and a place in the College Football Playoff National Championship. It surprised almost all of the college football experts by handily beating No. 1 ranked Alabama in the semifinal and securing a spot in the title game against Oregon. Then, in the biggest game of the year, the Buckeyes and their third string quarterback had very few problems. The team walked off the field national champions.
So how did the Buckeyes do it?
The team never deviated from Coach Meyer’s leadership. You see, besides being a great football coach, Coach Meyer is an excellent portfolio manager. His team is his portfolio and his players are his assets. His strategy for managing his portfolio has proven to be a winner on the field and off. Here are five investing lessons I’ve learned from watching Coach Meyer.
1. When a position gets too big, it’s time to reallocate.
Coach Meyer and the Buckeyes faced a unique “challenge” entering the 2015-2016 football season: three starting quarterbacks. Granted, all three served the team well last season. But Coach Meyer knew how unlikely it would be for him to need all three again. The position was too big. So he reallocated one of his quarterbacks.
Every so often, investors must reallocate their capital, too. When a stock has a great run, it becomes a bigger and bigger percentage of an investor’s portfolio. From a risk management perspective, it makes sense to cut the position and transfer the money somewhere else. Which brings me to my second point.
2. Always find a way to keep talented players in the game.
Rather than allow one of his quarterbacks to transfer to a quarterback-starved competitor or sit on the bench just in case, Coach Meyer found a way to keep all of his talent in the game. He transferred Braxton Miller to H-back. When asked why, he said it was important to keep such a talented player on the field.
Miller proved his coach right on Monday night, scoring two touchdowns, including one with a move described by some as “Miller’s Spin Heard Round the World.”
Braxton Miller’s H-back debut demonstrates that investors have to be “in it to win it.” You won’t score any points or grow your nest egg by keeping your money on the sidelines.
3. Recruit talent, not backups.
The success of last year’s trio of first-class quarterbacks surprised competing teams and Buckeye fans alike. One fell and another quarterback took his place… seamlessly… twice. Coach Meyer attributed his team’s success to the fact that he doesn’t recruit backups. He recruits only talent.
It is important that investors don’t recruit backup positions in their portfolios as well. You want to know that, if needed, even your more speculative positions have a good chance of performing well when they are called up. Having a small stable of high risk, but even higher reward stocks on your roster is important. It just takes one of them to rip, much like Cardale Jones’ passing arm, to make your year. But do your research and don’t rely on lottery tickets or backups to fill this important spot in your portfolio.
4. Sometimes it feels like everyone is betting against you, but you can use it to your advantage.
The Buckeyes are arguably the most hated team in all of college football. Like Rodney Dangerfield, “they get no respect.” As an individual investor, it’s easy to feel the same way. So take a cue from Coach Meyer and use it to your advantage.
Last year, while nearly every team in college football was selling the Buckeyes short, Coach Meyer was buying. He quietly coached his team into a powerhouse without the pressure of high expectations. When it came time to cash in on the national championship, he and his Buckeyes were ready.
In the market, it’s easy to get caught up in the herd mentality and blindly follow the lemmings off the cliff. But savvy investors know, in the long term, it’s usually more profitable to buy when everyone else is selling.
5. Go ahead, run up the score.
After winning the national championship, many commentators tried to shame Coach Meyer for running up the score in the fourth quarter when it was clear the Buckeyes would emerge victorious. Many other coaches would have had their players “take a knee” and run out the clock. Not Coach Meyer.
The Buckeyes continued to play, scoring another touchdown with 28 seconds to go. Coach Meyer even challenged a referee’s call. When questioned about the break in tradition, he said, “I didn’t even think about taking a knee. We play to win.”
As investors, we should always play to win, too. Let your winners ride and feel free to run up the score.
The college football season has just begun, and I look forward to more lessons from Coach Meyer while watching some great football. As the head coach of your own retirement savings, why not incorporate the best strategies of the coaches around you into your portfolio management?
Have a question or comment for Kristin? Share your thoughts in the comment section below.