As we transition from spring to summer, regardless of age or gender, now is the time that we are all glued to our television sets watching live sports action. Just as soon as we think we know the outcome of the game or match, something suddenly changes and so does our expected outcome. We get great satisfaction rooting for our favorite teams and players as we sit on the edge of our seats anxiously waiting to see who wins and who loses. We also get great satisfaction being armchair quarterbacks as we scream at the players, coaches, and referees who clearly don’t know what they are doing.
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Let me suggest that as you read this to start thinking like a team owner. With your team owner hat on you know that offense gets the glory and defense wins the championships. Owners also know that defense can keep you in the game when your offense isn’t performing. Most competitive sports have separate offensive and defensive components, but few of them focus on the separation of offense and defense as definitively as American football. Professional football players typically play only offense or defense, though there have been a few NFL player standouts who have played on both sides of the ball. With an understanding of the differences between offense and defense in football it can help you to better understand the game. It may help you to better understand the money game as well. A typical NFL team consists of 53 players divided into three separate groups: offense, defense and special teams. Of those 53 players, 45 are typically placed on the active roster in any game, although a 46th player may be added as a third quarterback for offense. Two players on the active roster serve as special team’s kickers for field goals and punts, while the remaining 43 or 44 positions are divided between offense and defense players. Though the exact number of players in offensive and defensive positions on the active roster may vary slightly from one team to the next in any given game, the division of players on the active roster typically favors an equal or close to equal split between offense and defense. Only 11 players from a team's active roster take the field at a time, regardless of whether they play offense or defense.
The best offense is a strong defense
With this as our foundation of the game of football, as team owners, we get to fill in the blanks with the names of the 11 players who are on our offensive team and the 11 players who are on our defensive team. Whether it’s a sports game or the money game, no matter what, we want to stay in the game so that we might win the game. When we allow the other team to win too many points, the odds of winning begin to dissipate. Our team may never recover. Similarly, when market losses are so punitive and the drawdown is so severe that too much money is taken away, the odds of getting back to even may not be in our favor. No matter the game, it becomes the owner’s obligation to do all things possible to keep the team on the field. Take the time to fill in the blanks of the positions you own in your portfolio that comprises your offensive team. These are vehicles that can perform well when markets are making money. For many of us, that part is easy. We know what we own that can make money when markets go up.
When a tennis player hits the ball into the net it is called an “unforced error”. The opponent didn’t win the point because the player who made the mistake of hitting the ball into the net gave up a point on their own. Football team owners identify the players on their defensive team. As investors, let me encourage you to fill in the blanks of the vehicles that can keep you in the money game when your offense team isn’t performing. Look for vehicles that may limit your losses in bad markets so that you can stay in the game and stay in the money. You might like to establish a goal, for example, of limiting market losses to -20%. This way you need 25% to get back to even. If it becomes the case that you need 1000% to get back to even, such odds may not be in your favor anytime soon. Take the time to go back to 2000-02 and 2007-08 to see if there are strategies that you could have owned that held up better as compared to allowing funds to go through serious drawdowns.
"Winning means you’re willing to go longer, work harder, and give more than anyone else." Vince Lombardi
These strategies need to be put into place in advance of unforeseen events. Because when things turn awry, reversals of fortune can happen with a fierceness that just knocks out the unprepared leaving them out for the count. Whether we are rooting for the team we own, looking at our checkbook, or our investment portfolio, now is the time to prepare for the good, the bad, and the unforeseen.