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.
While watching the Big Ten tournament this last weekend, although disappointed with the outcome I was impressed with our Wisconsin Badgers. As many of you may know Bo Ryan was named Big Ten coach of the year. At the beginning of the season Wisconsin was not expected to compete for the Big Ten title let alone make the NCAA tournament. They did both.
What Bo Ryan accomplished was communicating his system to his players and getting them to buy in to his system. He provided a process and the discipline to be successful. When you look at each player individually you will probably not be impressed.
When you put the parts together properly you have a winning combination.
Coach Ryan has been able to consistently win without superstars. He does this because he recruits coachable players that will fit into his system, his process.
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 Bo Ryan does each component serves a purpose. The truly difficult part is coaching investors to truly believe in the system even when things are not going well. Coaching provides the discipline to follow your plan. As the 2008-9 crisis made us realize, to our horror, that equity markets do not always advance.
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.
Coach Ryan is successful, long term, because he brings process and discipline to his team. 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.