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Financial Planning

Sand Traps, Rough Lies – Making the Green in a Stressful Market

This article was originally published on Quadrant Group’s website. Quadrant Group was acquired by Progeny in March 2017.

Golfers relaxing

The great golfer Bobby Jones once famously said: “Golf is played mainly on a five-and-a-half-inch course… the space between your ears.” Any seasoned golfer will have thrown away enough rounds out of anger, impatience or fear to recognise the truth in his words. Whether it’s a friendly at your club or on the PGA Tour, golf, like successful investing, requires confidence as well as competence.

As a wealth adviser, I am often asked about the most difficult periods in the financial markets during my career. You may have your own opinion, as a result of living through one or several challenging periods of market downturn. The bear market of 1973-1974, the tech boom and bust of the late 1990s, 2008-2009 global financial crisis or perhaps the recent market turmoil at the start of 2016. In times like these, it can be difficult to confront anxiety and keep your mind focused on the course ahead.

Straight shot, fade and draw

The hardest shot in golf is the straight one because golf balls are designed to take up spin – it helps them to rise, to stop and to roll. For this reason, some golfers draw the ball, others prefer to fade – but very few rely on consistent straight hitting. The nature of investing is similar. Financial markets are designed to rise and fall and risk goes hand-in-hand with returns. Knowing your position and planning for ups as well as downs will make the difference between a deliberate fade and a damaging slice.

Financial markets are designed to rise and fall and risk goes hand-in-hand with returns.

The direction a golf ball takes is caused by the swing path of the club and the angle of the clubface at impact. You can strike a ball in nine different ways, however only three; the straight shot, fade and draw are desirable – the rest are uncontrolled. When you can assess precisely which one of the nine is responsible for each shot, you will find the root of any swing problem more quickly. The same is true of wealth planning. You need to take a holistic view of your financial position, including all the bits and pieces that you have accumulated over the years. It is no good letting something sit idle or ignoring a potential issue. Wherever possible, you should consolidate and simplify to achieve a plan that is more easily manageable and fits your lifestyle goals.

Pre-shot routine

Successful golfers focus on process rather than outcome when competing at the highest level. Improving calm and focus during high-pressure moments comes from patiently and persistently doing the right things over and over. These process goals are the ‘to-do-list’ of players striving for winning results. Learning and executing a good pre-shot routine will eliminate the faults that can occur before you make any strike. Correct preparation helps you to become more consistent and remain in control.

As with financial planning, a clear understanding of all the components that make up your wealth need to be considered to provide a basis for your life plan. Lifetime cashflow modelling will identify what you need to earn and save, the returns needed, how much risk you can tolerate and afford to take. It will allow you to consider the underlying assumptions used and raise any material issues that might need to be resolved.

Use your course planner

These days there is little excuse not to refer to a course planner. They are widely available at clubs and for some player’s even wearable, through popular GPS-enabled apps like Golfshot, Hole19 and GolfLogix. However, bear in mind that if you don’t fully understand a yardage chart, they may land you in more trouble.

A clear understanding of all the components that make up your wealth need to be considered to provide a basis for your life plan.

In a relative sense, building a suitable investment portfolio can be reduced down to an elegantly simple set of risk choices. Investors can choose institutional quality, low cost ‘passive’ funds designed to return what the market has to offer rather than trying to beat the markets, which is evidentially a futile pursuit.

Deciding how much to invest in growth assets, such as equities, and how much to invest in defensive assets, such as high quality bonds that will offer protection from large falls in the value of the growth assets the investor owns, will enable the formation of the overall mix of investments known as ‘asset allocation’, like a course planner.

Rough recovery

Every golfer, no matter how good, sometimes ends up in a rough lie. If you’re lucky, the rough is no more difficult than playing from the fairway. But introduce a hazard or two, add a more challenging lie, and a recovery shot out is a demanding test. Knowing what you can do and resisting the temptation to try any more can make the difference between a minor setback and a potential disaster.

Too many golfers try hacking a way against reason to get back on the fairway. If your ball lands in the brush, stay rational and logical. Your main thought should be the safest route back to mown grass, not the shortest distance to the pin.

Wherever possible, you should consolidate and simplify to achieve a plan that is more easily manageable and fits your lifestyle goals.

As an investor, you will face similar challenges. By applying common sense and staying the course, you have a much better chance of achieving a satisfactory result in a stressful market.

On the green

Investing, like golf, is an individual pursuit and if you lose control of your emotions and let negative, irrational thoughts begin to dominate it will impact your score card. If you pick a line and start the ball on that line, you have putted well; even if you haven’t read the green quite right.

You may never hear someone say “That was a superb club selection” or “You have a beautiful pre-shot routine,” but it doesn’t diminish how important these factors are to your game. By thinking better, planning ahead and staying the course you will get the most out of your time, effort and investments.

This mindset has reduced my handicap from 19 to 11.

Having a good adviser can help you achieve the patience, fortitude and discipline you need to succeed with investing. If you would like to know more about Quadrant Group, or simply share in my passion for golf and would like to comment on this post, I would love to hear from you.

This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Author Dominic Lobo

Director, Wealth

Dominic became a founder and Director of the Quadrant Group in 1994.

Learn more about Dominic Lobo

Join the discussion 2 Comments

  • Carolyn Harris says:

    Enjoy all the newsletters and am glad that you are keeping in touch with your clients – even just monthly and in passing. Suits me.

    Do you think Brexit is causing a dip, a wedge or is it rolling along the green??

    Carolyn Harris

    • Dominic Lobo says:

      Dear Carolyn,

      I’m pleased to hear that you enjoy our communications. Being a Brit resident in Spain, I guess there must be a large degree of anxiety as to how BREXIT will be delivered in practice and how it will impact upon you. There is no doubt that the vote initially drove a wedge between the UK and the EU, however over recent months the results of the local elections in Germany have demonstrated a political swing away from Mrs Merkel, the primary driver being immigration. If this was to manifest in a general election the landscape will change considerably and could be more accommodating of the UK position. A similar story could unfold in France, Spain and Italy.

      It is clear that it is in everyone’s best interest for a sensible solution to be reached, both for the EU and the UK certainly on trade and the security of those EU residents already in the UK and for expats in the EU.

      As far as investments are concerned, our approach has been to slant investment away from a large UK bias and more to international investments which primarily are US dollar related. You will have noticed that there has been a marked softening of the pound against the dollar which means that UK investors have benefited. The recent softening of the pound against the Euro seems overdone and many pundits are predicting a recovery, but who knows. It has been the change in dollar pound rates that has been the biggest catalyst to the performance delivered with a return of 17% for the 12 months ending in August for our AstutePortfolio 60. Unfortunately we do not have a crystal ball but we know that our investment proposition is built on sound principles which through rebalancing should keep you on the fairway most of the time.

      We will have to believe in our politicians to do what they need to do. Hopefully the egos of the Juncker’s of this world will not get in the way too much.

      I am sure you will appreciate this is purely my opinion and that past performance is not necessarily a guide to future performance. We remain positive in our outlook albeit there will no doubt be a few bunkers along the way.

      Kind regards,
      Dominic

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