Have you ever realized how much golf and investing have in common? Personally, I think it can be used as a blueprint for an investment strategy. Now before calling me golf crazy, please hear me out. Here are my 10 reasons why golf is a lot like investing:
1. Different courses = Different market landscapes - Each golf course has its own nuances. Some courses play narrow, while others may have hazards such as water or sand traps. Each course is different, and you should approach the course differently. Currently the big news within the stock market is a concern of rising inflation and filling the job market. Knowing the course layout is like being aware of current market conditions. You will need to make sure your portfolio is properly aligned to avoid potential hazards.
2. Multiple golf clubs = Diversification - All the greatest golfers carry more than 1 club. You do not see PGA tour professionals carrying just a putter or just a driver. They carry 14 clubs. This is like investing in different market sectors. You really need to have a proper allocation which includes a diversified set of holdings. You are not going to want to use your driver to put the ball from the green just like you are not going to want to have an individual stock as your emergency fund.
3. Caddy’s & swing coaches = Financial Advisors - You can go it alone or you can hire some help. Even professional golfers lean on their coaches and caddies because they understand how important it is to get another perspective. At the end of the day, it is the golfer’s choice for the club and the approach but having someone on your team often helps navigate the course. They can provide an outside perspective you may have not otherwise have seen.
4. Mental Strength = Behavioral Investing - Mental strength is a huge part of being a great golfer. Making emotional swings can hurt just like emotional investments. Some investors want to hold investments purely for the emotional aspect for many different reasons. They may want to hold an investment because it performed well for them in the past, much like a golfer likes to hit their 5 irons because they hit it well during the last round. As we all know, sometimes it just does not translate in future performance.
5. The same golfer does not win each week - Do not get caught up in your investment performance versus your peers. Your peers' financial goals and strategies may be different. Some courses are better for longer hitters while other courses play better for wedge players. Depending on your goals your portfolio might be setup differently and you may underperform in certain market conditions and outperform in others.
6. Choosing your clubs and balls = Choosing your investments. You have so many options when it comes to balls and golf clubs. Each has its benefits and differences. There are thousands of investments you can choose from. The truth is you should really get fit for clubs to see what the best clubs are for you. This is much like your financial plan. You should really put together your financial plan first to see which investments are the best fit for you and your future.
7. Golf is a long game and so is investing. The key is to be good over the entire game. You can have 3-4 bad holes and still have a good score. The main objective is to be consistent and avoid triple bogies. You want to make sure your portfolio is consistent. You may have a bad investment, but if it does not wipe you out you should be okay overall.
8. Changing your grips, cleaning your clubs = Rebalancing - Sometimes your grips get old, or your clubs get dirty when you are playing, especially when the weather is not cooperating and if you are through a few holes. I see this as rebalancing. Sometimes those old clubs just need added money, like investing in a new grip or just cleaning off some clubs that have been working well. You should rebalance your portfolio by moving some of the positions that have done well into other investments that have not to keep a proper allocation.
9. Reduce the number of swings = avoiding mistakes – Sometimes, avoiding the mistakes and maintaining consistency are better for your overall game. If you hit a bunch of bogeys, the increase in swings will increase your score and you will be over your handicap quickly. Sometimes laying up and not going for that big hit will help. The holes where you got triple bogies are the ones that can have a negative impact on your overall score. Similar to investing, if you can reduce your number of bad investments or limit the downside the better off you will be in the long run.
10. Longer & Shorter Holes = Long Term Goals & Short-Term Goals - Think about it this: A par 5 is the longest hole on the course and all golfers will begin with a driver since you can hit the ball the farthest with this club. The problem is it is one of the hardest golf clubs to hit and you can miss the farthest. The good news is you have 5 swings to get a par. If you miss the fairway, you still have 4 more swings to make up for the mistake. Just like long term investing: If you make a mistake with an investment, and it is a longer-term investment, you still have time to make it back and achieve your goals.
A par 3 is the shortest hole on the course and golfers begin with a shorter club that is more forgiving than the driver we previously mentioned. With a par 3 you only have 3 strokes to make the hole and if you make a big mistake, it is much harder to come back from that mistake. Same with short term goals: You want to invest in the short term investments that will not fluctuate like that par 5. You want to avoid large mistakes when you have earmarked an investment for the short term. They do not go as far, but they are also a lot more forgiving.