Here's what hockey can teach you about setting your own best benchmark in investing…
Every Wednesday, we talk about some tips, insights, and coaching comments about investing. Our aim is that through these, we’ll be able to help you improve your financial decision-making and achieve financial stability in the long run. For this article, let’s focus on an important tip for your personal life and investing life. Continue reading to learn how you can properly set your own best benchmark. Stay tuned also because I have a special announcement at the bottom of the page. I hope you’ll take the time to read that because it’s related to the theme of today’s topic!
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Here's what hockey can teach you about setting your own best benchmark in investing… Did you know that some people are born with an “11-month advantage”? For example: In hockey… A hockey player born in January is four times more likely to get into a pro league than a player born in November. Why? It’s not that people born in January are inherently four times better at playing hockey. It’s just because the age cutoff for playing hockey tends to be January 1. This means January babies will be 10 to 11 months older, in the same grade, and on the same team as someone born in November or December.
According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, 11 months is a HUGE difference in terms of physical and emotional maturity. In fact, statistics like that might be enough for someone born in November to give up on his or her hockey dreams! However, if you ask any pro hockey player the key to his or her success, he or she will undoubtedly mention all his or her hard work, NOT the mini-lottery he or she won at birth. Personal effort is important. Pro hockey players put in years of hard work and training to get to where they are now… but the thing is, that’s not the only factor that matters. As we’ll explain today, it’s such a disservice—both in a person’s personal life and investing life—when he or she doesn’t acknowledge those factors. Personal Effort is Just One Piece of the Puzzle Carl Icahn is known as the “private equity king” and one of the most successful asset managers in the world. He once said: “Don’t confuse luck with skill when judging others, and especially when judging yourself.” What did he mean by this? When you look at yourself relative to other people, it’s easy to put yourself on a pedestal. Icahn knows you can’t control the “luck factors” that cause differences between your experience and someone else’s—you might not even be able to identify those factors! Something as simple as where, when, or what month you were born can be a far bigger factor than your own personal effort. However, that doesn’t mean you should no longer benchmark your performance. What we’re simply saying is you need to control the factors that matter and you can control. One of the ways to do that? Stop comparing yourself to others! Instead, compare yourself against yourself. Ask how you’re doing today relative to a month ago, a year ago, or five years ago. By comparing your own achievements with those of your past self, you can still control the other factors for your success. In other words… You are your own best performance benchmark. So, how can we apply this concept to investing, too? If you compare your investing portfolio versus someone else’s, you’ll probably only look at raw performance. Joel Greenblatt, a finance professor at Columbia University and head of Gotham Asset Management, tells investors that they “must be diversified enough to survive bad times or bad luck so that skill and good process can have the chance to pay off over the long term.” Greenblatt is right. Diversification across different asset classes, like stocks and bonds or money markets, is one of the most valuable ways to protect your portfolio. Many investors are familiar with this notion. The problem? They might not have considered that the application differs from person to person. Think about this: Everybody has different financial needs. It goes beyond age, which is a common factor. Have you ever been told that when you’re young, you should put more money in stocks and when you’re old, you should buy safer assets like bonds? That’s a gross AND dangerous generalization! It’s like assuming every 45-year-old was born into the same circumstances, lived the same experiences, and had the same personal goals. That’s why it makes no sense to imply that everyone in a certain group has the same risk tolerance and should therefore rely on the same diversification strategies. Rather than basing your allocations on age alone, we recommend splitting your money into four buckets:
Within those parameters, you should split your money between cash, stocks, and bonds. Take a look below:
According to Professor Litman, this is the basis of his team’s Equity Allocation Outlook in their Timetable Investor report. Each month, they analyze the current state of the market, and that analysis informs their outlook and recommended investing timeline. Take note: Professor Litman and his team won’t tell you exactly what to do with your money. Their Timetable Investor will simply force you to think about your individual monetary needs, and to diversify based on your spending requirements. These should directly reflect your goals in life and your financial situation. Besides, the Timetable Investor is one of the most valuable services the Altimetry team offers because it’s driven by individual monetary situations, NOT some one-size-fits-all approach. According to Professor Litman, such an approach truly does a disservice to investors. The bottom line? The market has changed from the past decade-plus. So, it’s not enough to just put money into the market and hope for the best. Now more than ever, you need to track your own performance. Doing so will allow you to minimize how much luck plays into your portfolio performance. In the long term, this will also allow your effort to shine through. SPECIAL ANNOUNCEMENT: As a business leader, I deeply care about your financial health. Sure, diversification across different asset classes is one of the most valuable ways to protect your portfolio. But how can you do that in light of a coming debt turmoil? With higher rates, increasing corporate debt, and a tightening business environment, there are a few more things you need to keep in mind as an investor or asset manager. That’s why TOMORROW at 12 p.m. EDT, I invite you to join the “Massive Equity Gains from the Strategic Buyers’ Market: Powered by a Wall of Debt” event. Here, my friend and colleague, Professor Joel Litman, will talk about a potential crisis and an equally potent opportunity that he and his team have been tracking over the past few months. Register here to know a key opportunity for growth in the ONE sector that Professor Litman and his team think will take advantage of Corporate America’s upcoming rush to raise capital. I highly encourage you to register now before it’s too late. Don’t miss out on Professor Litman and his team’s latest strategic insight. See you there! Hope you’ve found this week’s insights interesting and helpful. Discouraged by so many fad diets and false promises, Jean Nidetch founded Weight Watchers (now known as WW International) in 1963 to offer a scientifically-backed support system for those who wanted to lose weight. Learn more about why you should invest in what people want in next week’s article! |
