Playing a Sport and Investing in the Capital Markets
Decision making. It is a life skill. Most sane people desire to make better decisions as life goes on. How does one go about doing so?
Kids learn to make the basic decisions of life through experience. It starts with touching the hot stove and the burnt fingertip. As one grows and matures, it is about assessing the risk and reward. When favorable, and the risk is manageable, then one proceeds. Many young people learn to make decisions through playing sports. Excelling in most sports is about evaluating the risk and reward properly, and then executing. The analogies are endless.
- Baseball hitter: which pitch to swing at factoring the ball and strike count, who is on base, the game situation, the weather, and more.
- Football quarterback: when to throw the ball, when to run, game situation, who is the receiver, who is the defender, how is my protection, and on.
- Any golfer on a par 5: when to lay up or to go for the green, assess your given level of skill, the weather, level of competition, $ expense of a golf ball, peer pressure, to name a few.
- Basketball: when to take a shot based on distance from hoop, game situation, who is the defender, how are my teammates positioned, and on.
The same applies for numerous other sports and competitions from auto racing to soccer to hockey.
Too many investors are attempting to hit the half court basketball shot, when they are afforded the opportunity to take more reasonable and makeable shots closer to the hoop. If you only take half court shots, the risk of failure is large (over 90%) while the return (a made 3-point basket) is modest. It is obviously not worth it, and that why basketball players only take half court shots as a last-ditch effort (end of a quarter, half, or game). That’s why the country club 15 handicap golfer doesn’t “go for the green” with 255 yards remaining, over water, and a head wind.
Another aspect is the fear of missing out. People see their colleagues make two half-court shots in row, and now want their shot. If they can do it, so can I. The answer is you can do it. But that is not the point. The proper questions are “is it worth the risk?” and “what’s the reason to even try?”.
When investing in the capital markets with clear intentions, most investors don’t need to hit a homerun or make a half-court 3-point shot. They need consistency. If one repeatedly executes investment decisions based on proper risk-reward evaluations, then the results will be consistent over time. Wealth can be built. Not right all the time, but right enough of the time to meet the goals and intentions. The goal is to win the game, the long game. The long game for most is decades long, maybe 40-50-60 years. Having financial resources to last a lifetime is winning the long game. Just win the long game.
Adam Chaney
www.optimalwealth.net
Certified Financial Planner, CFP®
Chartered Retirement Planning CounselorSM (CRPC®)
Accredited Portfolio Management AdvisorSM (APMA®)
https://www.linkedin.com/in/adam-chaney-cfp-81193210
Securities & advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC
Past performance does not guarantee future performance. Investing involves risk including loss of principal.