Does Diversification Work in The NFL?

The U.S equity markets are making new all-time highs. Of course at one time the Dow Jones Industrial 30 had an all-time high of 200 then 1000 then 2000 then …….18,000…then????????

English: Brett Favre (#4) and Aaron Rodgers (#...
English: Brett Favre (#4) and Aaron Rodgers (#12) warming up before a game at Lambeau Field. (Photo credit: Wikipedia)


Some investors are considering moving their money out of the stock market. Because the markets are at all-time highs. The market has to go down because it is at an all-time high.


Since no one can predict the future, this is a huge mistake.


You must decide if you are a gambler/speculator or an investor. Gamblers believe they can out guess the market and avoid all losses. The gamblers have proven numerous times to be wrong, in the long run. One may get ‘lucky’ but no one can consistently market time.


In markets like these diversification is your buddy.


Proper diversification spreads risk across various asset classes with varying return characteristics or dissimilar price movement. Simply said: they don’t do the same thing at the same time.


The NFL season is quickly approaching. Teams are full of optimism about the future season. Every team says ‘This is our year’.


Being a Green Bay Packers fan I am very optimistic about this year. We appear to have all the ‘pieces’. The Packers appear to be well diversified.


The Packers are fortunate to have had two great quarterbacks in a row.


Can you imagine a team that put most of their money into one great player?


Even with these great players it takes a full team to win. Can you image Aaron Rodgers or Brett Favre without an offensive line or a good running game or receivers or….?  Can you imagine the result if your team had a great offense but a poor defense?


All consistent winning teams have a diversified collection of players. All working together as a unit.


Can you imagine a team that based its decisions on the emotions of the fans? Fans are great but they make emotional decisions with no plan. There would be chaos.


Without a good coach teams would make many emotional decisions during game time. Granted there are times this approach would work. But long term it is a recipe for disaster.


Those of you which are my clients own portfolios which are professionally diversified and rebalanced much like the large pension funds.


Over time these portfolios will help you successfully accomplish your investment goals.


There will always be someone touting a ‘new’ strategy that will protect or insulate you from the current risks.


These Wall Street bullies want you to believe they can predict the future and earn you stock market returns with Treasury bill risk. What you end up with is Treasury bill returns and stock market risk.


Find an investor coach/fiduciary adviser who will help you build a prudent diversified portfolio designed for you. And more importantly keep you disciplined during both up and down markets.


Process (diversification) and discipline will lead to a successful outcome.


To succeed in investing you must own equities….globally diversify…..rebalance.

There Is No Free Lunch….

As I write this it is Monday January 4, 2016. The Green Bay Packers are no longer NFC North Champions. The equity markets have started the year in a very negative way. Many investors are getting nervous. Of course, the mood here in Green Bay is not a good one anyway given last night’s Packer loss.

Many are asking for explanations. Why is the market down so much the first day of the year? Is this the sign of things to come this year?

The financial news media is telling us that the Chinese manufacturing numbers were weaker than expected. Or was it result of the Middle East turmoil? (Of course, this could be an excuse nearly every day of the year.)

As I have mentioned many times before the equity markets are random and unpredictable. There is no way to consistently predict what will happen next. Anyone who tells you they can predict the future is delusional and you should run not walk away from them.

It is important for all investors to understand. There is no free lunch. You cannot earn stock market returns with Treasury bill risk.

And equity risk is just one of many risks we face on a daily basis. Most notably inflation risk. The risk that your investments will keep pace with inflation. Will your investments maintain their purchasing power? The equity markets allow us to maintain our purchasing power as well as grow our wealth.

I think a good analogy is how you accumulated your wealth in the first place. For the vast majority of us we had to work to accumulate our wealth. It included sacrifice to save for the future. We needed to forgo purchases that we ‘really wanted’.

But think about this. During your working career were all your day’s good ones? Were all your days UP? Were all your months, years….good ones? For most of us the answer is no. There were times some short and some extended where things did not go our way. But we persevered. We went on. Because we knew that in the long run things would work out. If we continued to work hard and work to improve ourselves.

There was/is a price for success. Dealing with the good and the bad.

The same can be said for investing in the equity markets. We know that there will be good days and bad days. If we persevere, in the long run we will succeed. You cannot panic at the first sign of market adversity. Because in the long run the good days will outnumber the bad days. And success will be ours.

Your investor coach will help you thru these ‘bad days’ so you can realize the good ones.

The Green Bay Packers on the other hand………….


As many of you may know I am a huge Green Bay Packer fan. Well Last night I watched my beloved Packers play their worst game under Aaron Rodgers. Nothing went right for the Pack. Let’s take nothing away from the Denver defense they played a great game. But the Packers had a very bad game.

After the game Aaron Rodgers was quoted as saying ‘We didn’t execute the plan we had in place’. Another quote might fit in here. ‘Everybody has a plan until they get punched in the face’. Mike Tyson.

The Denver defense played a flawless game so that probably had something to do with it. But anyone who regularly watches the Pack knows this was a subpar game for them. On both sides of the ball.

Being a staunch Packer I believe they will be back. Stronger than ever.

They will regroup and Coach McCarthy will emphasize getting back to their plan. What makes them a great team needs to be reinforced to the players and staff. It requires discipline in both the good times as well as the bad times.

There is no need to panic and look for another solution. Coach McCarthy knows his system works and he will make sure the Packers organization to a man is committed to that system.

Investors need to follow this lead. They need a prudent portfolio one which they understand and believe in. Sometimes when times are bad they need a coach to keep them from panicking. It is a huge mistake to look for something else. Something that works better right now.

Like the Packers they need to ignore the media hype and focus on their long term goals.

Also like the Packers they need to understand what the process is and believe in it. Remember investors do not have to know everything about investing to succeed but they do need to know the right things.

To succeed long term in investing find an investor coach/fiduciary adviser that you believe in and learn whatever you can.

Then you must own equities…globally diversify…rebalance. And repeat until you die.

Dow Jones Industrial Drops 9,956 points…..

That’s not a prediction, 9,956 points is what the Dow Jones Industrial dropped during the down days of 2014. Conversely the up days totaled 11,202 points for 2014. So for investors to realize the up days they need to endure the down days. The net effect for 2014 was positive. There of course will be years when the net effect will be down.

Unfortunately for investors there is no one who can consistently tell you which years will be positive or negative. There will always be volatility in the equity markets. To what degree they are volatile can also NOT be predicted consistently by anyone.

Over the long term equity markets will reward investors if they follow the three simple rules of investing:

  • Own equities and high quality short term fixed income.
  • Globally diversify.
  • Rebalance.

Every investor that I talk with wants to earn stock market returns with Treasury bill risk, including yours truly. What they end up with is Treasury bill returns with stock market risk.

The reality is that the equity markets reward prudent and disciplined investing. Investors need to realize this and learn to live with the volatility. The alternative is to go broke slowly. These equity markets are a great wealth creation tool if they are properly used.

Success in investing does not involve:

  • Stock picking.
  • Market timing. (Getting into and out of the equity markets at the right time)
  • Track record investing(Investing with the ‘hot’ investment managers)

This may sound simple but in most cases it requires the guidance of a coach. As I have mentioned many times successful investing requires prudence and discipline. A coach will supply both.

As an example here in Green Bay we are devastated by yesterday’s Packer loss. There were many things that contributed to that loss but one offers a good example for an investor coach.

With about 2 minutes to play Seattle scored a touchdown pulling within five. No problem Green Bay receives the kickoff and runs out the clock. An on sides kick was Seattle’s only chance.

Brandon Bostick the Packer was coached to block so Jordy Nelson could easily catch the ball. Game over. Well Brandon ignored his coach and jumped up trying to be the hero. It bounced off him, Seattle got the ball and went on to the unlikely win.

The lesson, if you are coachable and willing to listen to your coach you will succeed in investing. If you want to go out on your own and become your own ‘hero’ you might succeed but likely you will fail.

Remember the equity markets will remain volatile and go up and down throughout the year. With your sound strategy and good coaching you will succeed.