In the South, many people are obsessed with college football and sometimes to the extent of ridiculousness, but it is a way of life down here and rarely do fans care about how they are viewed because of their passion for the game. But the lessons that are learned in college football tend to be life lessons for the players and coaches involved, and I think that investors can also learn a thing or two from college football and sports overall.
Investors tend to always remember the worst periods in the market and rightfully so. But investors also try to protect themselves from these occurrences ever happening again and move to the complete opposite end of the risk/objective spectrum.
Recent examples would be the 2008 crash that has caused investors to sit in cash for nearly five years, while the markets have not only recovered the losses but also surpassed levels reached just before the crash. Or the tech crash in the early 2000s—this caused many investors to steer clear of technology companies because of the newness of them and also because of the recent demise of the industry caused by companies such as pets.com.
The comparison of investing and college football can be done utilizing two recent games that stick out prominently to me because of my allegiance to Georgia football and the Southeastern Conference.
The first subject event would be the Georgia vs. Auburn game from a few weeks back. In the final seconds, with Georgia leading and Auburn down to its last play, they put up a Hail Mary that is tipped by a Georgia player and happens to fall into the hands of an Auburn player who runs it in for the winning touchdown—a heartbreaker to say the least, but a rare play. The odds that the ball finds an Auburn player’s hands are very small.
The second subject event to review would be this past weekend’s Iron Bowl between Auburn and Alabama, where Alabama’s 57 yard field goal attempt went awry when it came up short and an Auburn player was able to return the missed field goal 109 yards for the game winning touchdown with no time on the clock.
Both plays showed us something… rare events occur and can be heartbreaking for some while exhilarating for others. These plays will cause the teams to spend a little more time on such plays in future practices, but it won’t drastically change the way they prepare for a game because the odds of these events occurring are so low. These teams will continue to focus on the major aspects of the game: offensive play calling and execution, defensive schemes and execution.
In my mind, these events are similar to the market crash in 2008. Of course, we tend to see market declines, sometimes even in excess of 20%, but the markets have continued to show resiliency by continuing to climb higher. But what happened in 2008 was a market crash that can really only be compared to the one seen in 1929.
Of course, these events can happen again and they could be sooner than 70 years apart, but just like Alabama and Georgia football will focus on the aspects that tend to lead to success more often, so should investors.
Investors changing strategy to completely hedge themselves against black swan events (2008) would be similar to Alabama and Georgia football changing their practices to spend 100% of their time on batting passes down or defending against missed field goals… seems pretty ridiculous even to an average sports fan.
Investors must learn from these events and spend more time managing against them than they did in the past, but it can’t take over the entire strategy. The longer-term strategy must remain the same because the odds point to the longer-term outlook (markets rising) to occur more often than the 2008 crashes.
Sports and personal money may be argued as dissimilar, and they are. But the lessons that we can learn from each are actually very similar. College football changes and so does investing, but the overall goal and game doesn’t. The goal of college football is still to score more points than the other team by putting the football in the end zone more often… this is the same way it was played when our great grandparents watched the game.
The goal of investing continues to be to grow assets and then utilize them to help supplement our retirement. This has consistently been done by diversifying and maintaining positions over long periods of time. Despite recent crashes and new media obsessiveness, this hasn’t changed.