Be a “Scratch” Investor for the Long Term
A “scratch” golfer is one who can play to a handicap of zero on any rated golf course. In other words, it’s a golfer who normally shoots around even par. Basically it’s someone who’s really good.
Shooting even par is extremely difficult for most of us mere mortals. So difficult, in fact, that the Golf Handicap and Information Network (GHIN) calculates that less than 2% of regular golfers are scratch or better. Add to that the number of weekend warriors who aren’t even registered in the GHIN system, and the number drops to below 1%.
Less than 1% of the golfing public are scratch golfers or better. Hold that thought for a minute.
Now, even if you’ve never played golf in your entire life, it’s likely that you know or know of someone who has made a hole-in-one. For those of us who do dabble in the game, we all certainly know of at least one person, and more likely a whole bunch of people, who have had an “ace.” Countless average and even below-average golfers have made multiple holes-in-one. My dad has had three, and that guy is terrible! (I have not, and no, I’m not bitter about it. Ok, I might be bitter.)
You see, holes-in-one have little correlation to the quality of the golfer, and there’s a reason for this. In a word, luck. There is such a high degree of luck involved in hitting a hole-in-one. Sure, a scratch golfer is usually going to hit the ball closer to the hole than your average bear, so his chances are higher, but they’re not that much higher.
So, virtually anyone could make a hole-in-one with enough swings and enough luck, but over 99% of us will never be scratch golfers.
But here’s the thing about scratch golfers: They’re not scratch because they hit the greatest number of spectacular shots. They’re scratch because they hit the fewest number of really terrible shots.
And so it is with investing: The key to becoming a superior investor is simply to avoid terrible – but terribly common – investing mistakes.
The execution of the above sentence is incredibly difficult for most people, which is why most people aren’t superior investors over their lifetimes. And execution aside, even the concept is hard for many investors to accept. Every golfer knows that a hole-in-one is more luck than skill. Every gambler knows that if their number comes up on the roulette wheel, they got lucky. But, for some reason, investors think every day that they were skillful when they bought Netflix at $500 and sold it for $650.
Having the discipline and patience to play the correct game, even when “average hacks” are outperforming you, can be excruciating. One of the most difficult things in investing is hearing about your idiot cousin getting rich off an “investment” while your portfolio is “meh” because it’s all “diversified” and stuff. I’ve seen decent golfers perform terribly because they’re playing with someone who’s out-driving them, and they start swinging too hard to try to keep up. I’ve never seen a scratch golfer do that. When it comes to investing, discipline and patience in pursuing the winning strategy, regardless of the noise around you, is the key to superior returns.
I like to think of an investing year as one hole in golf. Any average golfer can outperform a scratch golfer on any given hole, even by a lot. For instance, I once made a birdie on a hole where my scratch playing partner made a double bogie. I crushed him! It’s even conceivable for an average golfer to outperform a scratch golfer over nine holes. But, on 18 holes? Extremely unlikely. Over a 36-hole stretch? Not a chance. Literally, not a chance.
Play the investing game that gives you the best chance to be superior over a 36-hole stretch. Every golfer has a slightly different set of clubs and develops a slightly different swing to give them the best chance of success on the course. Similarly, every investor should have a slightly different asset allocation and asset mix that’s been tailored to their specific goals and circumstances and designed to give their long-term financial plan the best chance of success.
Golf and investing are analogous in so many ways, but in at least one way they are also very different: Unlike golf, anybody can be a “scratch investor” with the correct education, tools, and coaching. It just turns out that very few get there.
About the author: Doug Buchan, CFP®
is a Wealth Advisor with Buckingham Strategic Wealth. He works to help his clients make smart choices with their money so they can live the life that is most important to them.
Important Disclosure: The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting, legal, or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, confirmed the accuracy, or determined the adequacy of this article. IRN-21-2978