The few times I have played golf have been abject lessons in humility. When I managed to actually get the club in contact with the ball, the ball would move with reckless abandon, charting a path I had not intended. My game was unpredictable and out-of-control – kind of like the performance of my investment portfolio over the past two years.
There are several more parallels that can be drawn between golf and investing, suggests Drew Abbott, Vice President, TD Waterhouse Private Investment Advice and golf pro Rémi Bouchard.
“There are a myriad of similarities and lessons that hold true in golf and investing, from the risks and rewards of being aggressive to over-thinking a decision because of too much analysis,” says Mr. Abbott. “Golfers can take advice, tips and analysis they learn on the course and apply it to their investing behaviour.”
As an avid investor, Mr. Bouchard believes there are as many ways to achieve success in the market as there are on the links.
“The most important thing I teach in my lessons is that there is no one correct way to swing a club – that holds true if you shoot in the 70s or are just taking up the game. There are a few proven fundamentals but otherwise plenty of ways to get the ball in the hole. The most successful golfers combine intuition, discipline, sound fundamentals and expert advice.”
Mr. Abbott believes those same traits can be found in successful investors. “Most successful golfers adhere to a strategy comprised of shots they have practiced, combined with the occasional high risk, potentially high reward play. The same attributes can be found in the portfolios of savvy investors.”
Mr. Abbott and Mr. Bouchard offer the following tips from the course that can translate into a healthier investment portfolio.
Have a game plan: Just like professional golfers, who have a detailed strategy for every round they play, a successful investor needs to develop a financial plan with specific goals. Mr. Abbott spends a lot of time with new clients on their initial plan, setting short and long-term objectives and determining their expectations for returns. Just as in golf, don’t plan on a hole-in-one. Success won’t be the result of one lucky shot, but a series of strategic moves. “Keep your goals conservative,” says Mr. Abbott. “You don’t need to go for the hole-in-one if you set the expectation of six to eight per cent returns.”
Stick to the fundamentals: What most great golfers have in common are sound fundamentals. The swings may look different but the key elements such as grip, swing plane and impact position are similar and practiced often. “Every strong portfolio is based on a solid financial plan that reflects your decisions on three fundamentals: your investing goals, the required rate of return and your tolerance for risk,” explains Mr. Abbott. Sticking with the fundamentals is the best way to overcome factors beyond your control. For example, in golf, a slight wind can steer the best shot off course. Similarly, a blip in the markets can affect the soundest investments. “Make sure you have a sound plan to begin with and that your timeframe is adequate enough that you can withstand those windy days. You don’t want to react on a day-to-day basis.”
Take your lumps: When Mr. Abbott plays a round, he knows that if he hits the ball into the trees, he should chip and play for the bogey. In investing, if something goes wrong with your investing strategy, you should consider taking a loss and looking for a better opportunity. “Sticking to the plan is important, but you should be prepared to routinely analyze and adjust,” he says.
Avoid “paralysis by analysis”: Even in golf played at the professional level, you often see players take a little more time over a particular shot, examining it from all angles, and it doesn’t always result in a good shot. “In investing, if you have to over-analyze and get more than 15 research reports for one stock,” cautions Mr. Abbott, “there may be too much going on and it often results in a loss or an investment that is not appropriate.”
Stay in your comfort zone: Professional golfers will never try a shot in competition that they haven’t practiced. Unnecessary risks or trying something new on the course are mistakes high handicappers make, not seasoned players. Taking a gamble is usually done only after careful consideration. If you want to buy a penny stock based on a hot tip you picked up, says Mr. Abbott, set aside five percent or less of your portfolio for this kind of gamble. For the most part, the key to successful investing is understanding and respecting your risk tolerance.
