Active investment management’s weekly magazine for fee-based advisors

Why clients should follow their investment playbook

by Jan 12, 2022UpClose

Why clients should follow their investment playbook

by Jan 12, 2022UpClose

Financial advisors often use sports analogies when educating clients about investment concepts. Football offers many valuable principles that relate well to active investment management.

It’s hard to believe that the first-ever 17-game NFL regular season is already gone—and the standings finalized for the playoffs.

With the extended season, there is still a long way to go until Super Bowl LVI (56), to be held Feb. 13, 2022.

This season has already seen some interesting developments:

  • Tom Brady and the Tampa Bay Buccaneers defeated Bill Belichick’s New England Patriots in Brady’s first return visit as a Buc to Gillette Stadium on Oct. 3. While it was a low-scoring game, Brady nonetheless set the NFL’s career record for passing yards, and thanked “every receiver” who ever caught a pass from him. Brady ended the season as the NFL leader in touchdown passes and passing yardage, becoming the oldest to accomplish either feat.
  • In a game against the Detroit Lions on Sept. 26, Baltimore Ravens kicker Justin Tucker made a game-winning 66-yard field goal as time expired, the longest field goal in NFL history. 
  • The Arizona Cardinals, picked by Sports Illustrated to finish last in the NFC West at a 5-12 record, had a hot start to the season with a 4-0 record behind quarterback Kyler Murray—and finished the season with a playoff berth and a record of 11-6. On the flip side, “can’t miss” No. 1 draft pick Trevor Lawrence had some decent moments but discovered the realities of the pro game for a quarterback, with the Jacksonville Jaguars finishing the season at 3-14.
  • Major injuries remained a leading story in the NFL, and several teams lost star players for lengthy periods or the year. The season-ending injury data will be analyzed closely, especially in the context of the additional game being played this year.
  • The longer season also sparked a minor controversy regarding new season-long records. Sports Illustrated noted, “Several single-season records fell during the first Week 18 in NFL history. They may have an asterisk beside them—depending on who you ask—since these players had one extra game compared to their predecessors. But the record books won’t hold it against them.”
Having the right combination counts

One of the stories many fans have been following is the outcome of the trade of quarterback Matthew Stafford to the LA Rams. In addition to the rights to quarterback Jared Goff, the Lions received two first-round draft choices and a third-round selection—so it was probably not a bad deal for their future.

Stafford, and the Rams, in turn, have the chance for a memorable season—sort of a first for Stafford, a quality player whose teams lost more than they won in his 12-year career at Detroit (and who lost the three playoff games he did appear in there). So far so good for Stafford in LA. Despite a season-ending loss, they finished at 12-5 and led the NFL West standings.

I can’t help but think of an investment analogy when I consider Stafford’s situation. As has been written in several articles appearing in this publication, it is not about a singular strategy when considering the structure of an investment portfolio built with a high probability for success. Any individual risk-managed strategy working in combination with other well-constructed strategies is better able to handle a variety of market environments.

Similarly, Stafford is finding success with the right combination of other players, with complementary offensive performers and a strong defense for the Rams. And, of course, credit has to go to the Rams’ coaching staff and front office for putting all of the pieces together.


‘Defense wins football games’—and other investment analogies

In interviewing financial advisors for Proactive Advisor Magazine, many of whom are strong advocates of an active, risk-managed approach for their clients’ portfolios, I have heard more than once, “Winning football starts with a strong defense, as does investing.”

One of the authors for our publication took the football analogy a bit further for an article a few years ago called “Agility drills for client investment portfolios.”

I got a big kick out of the article and enjoyed swapping stories with the author, Mike Posey of Theta Research, who played high school football in Texas. Mike likens some aspects of football to several elements of sophisticated active investment management, citing some of the principles he believes are important to financial advisors and their clients, paraphrased here:

  1. Diversify. Just as it wouldn’t make much sense to field a team with players that all have the same skill sets or who all play the same position, an agile investment portfolio should also be diversified to include noncorrelated strategies, each with different strengths in the portfolio. Whether you call these strategies active, tactical, or alternative, they are characterized by rules-based approaches that seek to follow market trends rather than being victimized by them.
  2. Know the playbook. In an investment portfolio, it’s important for advisors to communicate why each investment strategy is included and what it is intended to do. In football, sometimes an aggressive passing style is called for on offense; at other times, a tightly controlled and conservative game plan is needed. Similarly, it’s equally important to make sure that multiple investment strategies are represented in clients’ allocations and not just multiple asset classes. To be effective, the overall plan for a portfolio should be like a playbook, with different strategies designed to perform during a variety of market conditions across long time frames.
  3. Watch the films. Saturday morning after the game, in the case of high school football, is always dedicated to watching the game films. Reviewing the films is akin to advisors monitoring their clients’ portfolios regularly. This is not to say that anyone—client or advisor—should be overly concerned with scrutinizing performance every day or every week. Instead, advisors should review their clients’ portfolios as frequently as quarterly and no less than annually. Such a review can help to determine whether the portfolio’s constituents are performing as expected and whether the risk level and suitability of the portfolio are still appropriate.
  4. Keep fantasy football in its place. A final point in this analogy is to be wary of the investment equivalent of fantasy football. Backtesting can be a valid and productive analytical tool when used properly, and a dangerous tool when used improperly. Investment advisors must resume their coaching role and make sure that not only are trading strategies evaluated properly, but also the methodology of producing backtests.

Mike summarized,

“Failure to include agile investment strategies can be costly. In football, the lack of agility can result in an opposing team’s score, or your own team’s fumble or tackle for a loss. For an investment portfolio, the lack of ability to adapt to market conditions can result in huge losses. …

“After 30-plus years in the investment industry, and having lived through markets of all types, I have come to some firm convictions. By including actively managed strategies in your clients’ portfolios, they will have a better chance, I believe, of being on the winning team and reaching their investment goals.”


If you are a fan, I hope you enjoy the rest of the football season—from the playoffs to the Super Bowl​.

And despite the stock market’s unpredictability, those who believe in the “Super Bowl Indicator” should have a strong rooting interest in the championship game.

The tongue-in-cheek prognostication has had a success rate of 74% for over 50 years, saying that if a team from the National Football Conference (NFC), or a team that was in the NFL before the NFL/AFL merger, wins the Super Bowl, the stock market will see positive returns for the year.

The opinions expressed in this article are those of the author and do not necessarily represent the views of Proactive Advisor Magazine. These opinions are presented for educational purposes only.

New this week:

David Wismer is editor of Proactive Advisor Magazine. Mr. Wismer has deep experience in the communications field and content/editorial development. He has worked across many financial-services categories, including asset management, banking, insurance, financial media, exchange-traded products, and wealth management.

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