March madness is upon us. The NCAA college basketball tournament is one of my favorite times of the year. Teams are fighting to get into the tournament and then wondering where and who they will play.
This tournament is a great example of what great coaching can accomplish. Each successful coach has a system, a process which they follow with discipline.
All the great programs have successful coaches with their own system and process. In fact Nick Saban head football coach of the University of Alabama was interviewed recently. Coach Saban said his success is due in large part to his process. He has a process for everything.
Once these coaches have a process they believe in. They must communicate it to their players. They must help their players BELIEVE in their process. Then it is a matter of remaining disciplined to their process.
When you put the parts together properly you have a winning combination.
What does this have to do with successful investing? Well to successfully invest for the long term, investors ‘buy in’ to a proven investment philosophy. This philosophy or strategy was developed through extensive academic research. Some was even Nobel prize winning.
The ‘winning’ strategy includes:
- Modern Portfolio Theory
- Efficient Market Hypothesis
- Three Factor Model
When you look at each asset class on its own you might believe that some components are far too volatile or risky. However when you properly build your portfolio, it actually reduces risk and improves results. Your portfolio should be built with the proper expected return and expected volatility for YOU.
Once the portfolio is built the hard part begins.
Like all the successful coaches they must remain disciplined to their process despite short term failures. The difficult part is coaching investors to truly believe in the system even when things are not going well. As the 2008-9 crisis made us realize, to our horror, that equity markets do not always advance. In fact so far in 2016 the equity markets have been disappointing.
It takes a coach to help us control our emotions when markets decline.
The same can be said for when specific asset classes have strong advances. Many of us would be tempted to over concentrate our assets in the ‘hot’ asset class only to see sharp declines in the near future.
The Wall Street bullies are counting on investors to continue trading into and out of the ‘hot’ sectors.
This undisciplined approach will inevitably result in poor performance and increased anxiety about the future. Investors, to be successful, must maintain a long term focus and forget the short term volatility.
Coaches like Roy Williams of North Carolina or Mike Krzyzewski of Duke or Bill Self of Kansas, etc are successful, because they brings process and discipline to their team(s).
You need a coach who will provide an investing process and discipline for you to succeed in reaching your long term financial goals.
To succeed you will need to follow three simple rules:
- Own equities
- Globally diversify
Remember NO ONE can predict the future, find an investor coach who follows this philosophy and succeed.