Invest like a golfer and play it safe
The conclusion of the Masters tournament usually means the start of the golf season for many Canadians — except those in the Prairie provinces, which are still dusted with snow.
There are a lot of interesting parallels between playing a successful round of golf and investing and the two disciplines are, at heart, a lot more similar than many would expect. Both can be very challenging and it helps to take a few tips from the pros every once in a while, especially before that first big drive of the season.
The first important rule is to never take excessive risks, whether you’re winning or losing. Playing the safe shot ensures consistency, which wins the day in both golf and investing. Preserving your good score or investment capital is, therefore, paramount. You may be tempted to take a big swing on a highly speculative investment, but don’t do it.
More often than not, investors in a losing position will try to take excessive risks to make back their losses. A struggling golfer taking a high-risk shot usually ends up with a lost ball, a penalty stroke and an even worse score that compounds one’s losses. Unfortunately, everyone remembers the shots that work out and end up climbing a tree like Sergio Garcia did earlier this season to play a ball, except in most cases they come down with a worse score and likely a broken leg.
Secondly, play your own game. It’s important to develop your own investment plan and stick to it. At times, you can be tempted to deviate given the strong performance of a particular sector or stock that your friend or colleague is touting. Let them play their game, not yours.
Third, take the emotion out of your investment decisions, because, like golf, it results in poor plays and investment losses.
Hiring a good caddy or, in this case, a good investment manager can help guide you through the ups and downs. But make sure you hire the right person for the way you play your game.
A licenced discretionary portfolio manager or investment counsellor is a great option for those who want a professional to work closely with them in managing their portfolio.
For those who want advice while still assuming responsibility for their investment decisions, there are a lot of financial/investment advisors to choose from, given that they dominate the industry in Canada.
It is also important to be aware of the environment and use the right clubs or investment tools. A windy day, for example, is not unlike a volatile market, and using the right club or risk-management tool is the key to a successful outcome.
Be sure to ask your caddy or investment manager what tools they have at their disposal to manage the risk in the markets and your portfolio. Don’t settle for stop losses, because they don’t work especially well in this world of high-frequency trading, and asset allocation is not risk management but a standard way of investing.
Finally, practice makes perfect: The more you play, the better you get.
When hiring someone to manage your money, make sure to look at their credentials and years of experience in the market. Like a PGA tour card player, many consider the CFA designation the highest standard in the industry.
In addition, those with the highest industry accreditations and licencing tend to have more experience actually managing investments instead of simply selling them. Which would you prefer having on the course with you?