Michael D'Angelo- May 2021
The Stanley Cup Playoffs have begun! There are many similarities between hockey and investments than someone would typically think. Like investing, putting together and coaching a winning hockey team involves balancing risk, reward and expectations, and ultimately requires a bit of luck along the way. Here are a few lessons which make winning a Stanley Cup similar to the world of investing:
Lesson #1: Forget Perfection, Position Yourself Strategically
It requires hard work, practice and a strong team, however, the odds of winning the Stanley Cup are fairly low - so are the odds of consistently selecting prime investments within the market. This can make the process of approaching the playoffs, and investing, fairly daunting.
Successful investing stems from focusing on what you can control. That can mean building a portfolio that is positioned to maintain return premiums, such as size, value or profitability that can improve risk-adjusted returns. Additional areas that are also within your control include asset allocation, minimizing taxes and more.
Lesson #2: Don’t Let Past Performance Dictate Future Decisions
Similar to allowing your team’s past success/failures to influence how you feel about the future of your team, investing based on previous performances will generally only lead to disappointment. As an investor, you should never assume that your “best pick” in the past or even from the most recent year will act similarly in the near future.
It’s also important to keep in mind that luck can often play a role in the success of one’s season. While your coaches and players might be skilled, sometimes a little luck can go a long way when paired with skill. It’s fairly common to see funds that have outperformed in a certain amount of time proceed to underperform in the following period.
Lesson #3: The More You Watch, The More Drama You Can Expect
Just like watching a clock tick slowly as you wait for a profound moment or event to take place, the more you watch the Stanley Cup, the more attached and emotional you often become about the outcomes. While highly entertaining, the drama associated with the Stanley Cup is undeniable.
Keeping a close eye on the market is almost never helpful or entertaining. In fact, the more you watch the markets, the more susceptible you may become to making poor investment decisions. Great investors detach themselves as much as possible from regular stock fluctuations.
Lesson #4: Keep in Mind the Importance of a Great Coach
There’s no denying that a team’s coach contributes greatly to its success or failures, sports-related or otherwise. Coaches can act as key motivators and can also be calming in times when emotions run high. In terms of financial well-being, working with a trusted, educated financial professional can be beneficial. Having a good coach is crucial to maintaining emotional stability and clarity as you make financial decisions.
Financial advisors often act as emotional barriers between individuals chasing returns and running from emotionally charged markets. With proper guidance, you may be more understanding and have more discipline to approach investments wisely. While we can certainly compare the two, creating a winning team to take home the Stanley Cup doesn’t have the same high stakes as developing an investment portfolio. Be sure to get in touch with a trustworthy advisor because when investing, it's always playoff time.