September 1, 2022

Where Golf & Investing Meet

By Michael McKeown, CFA, CPA - Chief Investment Officer

Where Golf & Investing Meet

After a major decline over the past decade, golf staged a comeback during the pandemic. What activity could be better for social distancing?  Rounds played jumped across the country, up 14% in 2020 and another 5.5% in 2021.[1]  Local golf course pros told me rounds at some courses are up 60% from pre-pandemic levels.

Investing also took off. It helped that lockdowns and the lack of activity left people looking for a new hobby. New accounts at Robinhood more than doubled. The meme-stock craze took everyone’s attention as tiny companies performed far beyond what company fundamentals suggested. These crashed and burned, along with the would-be day-traders. A few learned the difference between investing and speculating.

There are many similarities between the game of golf and investing.

Golf is a sport that requires physicality, but so much of the game is also mental and emotional. The ability to enjoy a good shot without becoming overconfident is necessary. The toughness to shrug off a bad shot and move on to the next one is a key for success. Even pro golfers hit the occasional shank out of bounds; it happens.

Golf is played against the course. There is no opponent running at you or forcing you to take a certain shot. The strategy is up to you. Playing aggressively or playing conservatively to make the best score is the golfer’s choice.

The game is loaded with built-in risks. Ponds, sand traps, trees, and high grass all are looking to penalize the golfer for errant shots. This can be managed with strategy, but sticking to the roadmap is a case of mind over matter. As I can attest from personal experience, going for the “hero shot” to get out of a difficult position is something I have tried to train myself to avoid, but I don’t always have the strength of my convictions.

There should be a margin of safety for your misses. Aiming directly at a tucked pin on the front left edge brings into play the bunker just 5 yards away. Accounting for the variability of the approach shot means aiming at the middle of the green is the less risky strategy. It may not be as much reward, but your score has a better chance of survival at the next hole, which could be an opportunity with more upside.

Every golfer knows they will not make good shots 100 percent of the time. Golf is an inherently volatile game. On a single hole you can land an amazing shot along with a bunch of embarrassments.

The Investing Parallel

Investing is the same kind of proposition.

Peter Lynch, the long-time manager of the Fidelity fund that returned 29% per year, once said, “If you’re terrific in this business, you’re right six times out of ten.”

That means 40% of the time, one of the all-time greats made mistakes. But he had the mental toughness to move forward and not abandon his strategy at the wrong time, which gave him more wins than loses in the long-term.

Great investors have a process. They understand that any strategy will have its negative periods. The ability to stick to the strategy, even when it is difficult, ultimately allows them to survive and score when the winds are in their favor.

The best pick a target. For individuals, this means truly knowing the “why” of an investment. It is baked into the financial plan that many people skip.  These people assume if they aim for the highest returns (picking a stock they read about, trying to beat the market, investing in a venture-backed company or in that commercial building everyone at the club is in), they’ll get to where they need to be.

There is no process for allocating capital. No thought to tax efficiency. There is not a repeatable screening checklist for new ideas. No due diligence process to uncover the why, and how, or the risks that go along with it.

Something I read this summer has stuck with me: “Golf has so much randomness that you will have to give up a significant amount of control.” [2]

For those successful enough to be investing, giving up control of investing in public stocks or private investment funds can be difficult. But accepting the variability and inevitability of price market movements is the price of admission to investing in assets that have higher upside.

As in golf, investors can control preparation, routine, and response.[3] This comes down to preparing with a plan, a process that is consistent, and a response rather than reaction to market risks and opportunities. This gives investors the focus to navigate economic and market cycles, regardless of what hazards are in the way.

2The Four Foundations of Golf, Jon Sherman, page 359.
3The Four Foundations of Golf, Jon Sherman, page 355.

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