“I can’t be a coach that is more concerned about the winning than the process. Even if it means at the end of the day it ends up costing you your job. It’s the way I operate.” Steve Lavin, Basketball Coach, St. John’s University
This was Lavin’s response to the reaction to his suspension of leading scorer D’Angelo Harrison during the 2013 season. This quote may or may not turn out to be prophetic about his future with the team. Lavin also suspended starting center, Chris Obekpa for violating team rules in 2015. This action virtually guaranteed their early dismissal from The NCAA tournament. St. John’s was eliminated by San Diego State Friday evening in the first round, despite a heroic effort by their undersized and outmanned team.
Coach Lavin understands the value of character and the role of teamwork in building a championship team. He learned about the ingredients for building a champion from one of the greatest coaches in any sport, John Wooden. Lavin was an assistant coach at U.C.L.A. where he had a front row seat to the process of creating a dynasty. Lavin learned from Wooden that there was no place for anyone who put themselves above the team in a winning program. While the Haters might criticize Coach Lavin for failing to bring a championship team to Queens in his five-year tenure, there is much more to this story and his process. Coach Lavin’s teams have won over 60% of their games during his tenure. More importantly his suspension of D’Angelo Harrison turned the young man’s life around. He became a team leader and a role model to his younger teammates after coming back from his exile. Winning an extra game or so was not worth ruining a young man’s future for Coach Lavin. The process and the big picture will always be his priority, no matter the consequences.
What does this have to do with individual investors and their decisions about their finances? EVERYTHING!!! Undisciplined investors often have no process and fly by the seat of their pants. They drift aimlessly into penny stocks, chase last year’s winners, and take tips from their brother-in-law. The probability of achieving their financial goals traveling this path is dismal. They could do worse than to look to a winning team’s process as a role model for creating a championship process for themselves.
Like a fine-tuned basketball team, a diversified portfolio is composed of different assets that all have an individual role, but are powerless if they are not carefully coordinated with the other teammates. If investors decide to sacrifice their defensive team (composed of high-quality bonds and cash) the results could be catastrophic. A championship team must be proficient at both ends of the court. Ignoring either aspect will most certainly lead to defeat. Investors must put the same thought and effort into building their portfolios. A fine line between offensive stocks and defensive bonds must be drawn. The process of how this is determined must be a time-proven process that can withstand the ups and downs of a long season. Investors must pick their players carefully and, like a league salary cap, they have to carefully weigh their costs. Most importantly, they cannot be too harsh on their players. Losing control of their emotions and firing the offensive team during the depths of a bear market will ensure that a heroic comeback will never take place. Without a sound process, all of the above-mentioned mistakes will happen continuously with devastating effects, much worse than losing a tournament game.
Individual investors have many time-proven processes to choose from. Michael Blatnick wrote a great piece in his Irrelevant Investor blog about this. He came to the conclusion that investors could have chosen five different strategies, ranging from dividend growth to momentum-based allocations. He determined that they all would have outperformed the S&P 500 since 2007. The key finding was investors could not abandon the process during this period. Just like the coach who benches his best players during inevitable slumps, abandoning process kills teams and portfolios alike. It is not a coincidence that two of the most successful teams in professional sports have the longest tenured coaching staffs. Bill Belichick of the New England Patriots and Greg Popovich of the San Antonio Spurs have not deviated from their processes and have the championship rings to prove this. Conversely, teams like the Oakland Raiders, who constantly change coaches like investors chasing last year’s best performers, are persistent bottom-dwellers of their respective leagues.
The bottom line can be summed up very nicely by Ben Carlson in his terrific blog: A Wealth of Common Sense. “Process allows you to stick with your investment plan without abandoning your strategy at the worst possible times.” The same can be said about coaches who let team violations slip because they are caught up in the moment of a playoff game. As Coach Lavin wisely knows, the short-term gratification will dwarf the long-term negative consequences for the future of the entire organization. The same could be said for investors’ bad behaviors in violating the principles of a carefully constructed process. There is one caveat to all of this: Choose your process carefully. There are many financial role models out there. They have done the heavy lifting so the individual investor does not have to reinvent the wheel. John Bogle and John Wooden have cleared the path for both novice investors and coaches, respectively. They have blazed the trail so you don’t have to use your machete. Make sure you keep in mind the words of Winston Churchill as you undergo this journey, “However beautiful the strategy, you should occasionally look at the result.”