The 2014 World Cup extravaganza is over. Sadly. The winners, Germany (Die Mannschaft), have taken the cake and eaten it too. Runners up, Argentina (La Albiceleste) are cooling their heels. Like in football, like in investments, scoring more goals than the opposition is a sure-shot way to success. However, the style plays an important role too.
Often understated, the style of your investments can make or break the aim of your hard-earned money. Some save to get their daughter/son married, some play Uncle Scrooge to buy that dream car or house...wishes are endless. Saving is the key. But saving alone is not enough. Investing money in the right manner is like having a 'super sub' Mario Götze. He will score when it matters.
For the sake of simplification, we will look at the top (5) ranked footballing nations and draw parallels with investment styles.
Spain - If you are Spanish football fan, you know what is Tiki-taka. For the uninitiated, tiqui-taca is a style of play in football characterised by short passing and movement working the ball through various channels, and maintaining possession. In short, Tiki-taka moves away from the traditional thinking of formations in football to a concept derived from zonal play.
As an investor, how do you employ Tiki-taka? In the ever expanding world that is 'investments', short passing is small investments at regular intervals. Possession in football is what is continuous monitoring of your investments.
The obvious pros are sometimes, as we saw in this World Cup, out weighed by the cons. Systematic investments bet that assets will only go up directionally. Regular peeks at your portfolio can be quite taxing as market volatility, to most people, is quite difficult to handle.
Tiki-taka could be for the deft managers or traders who know their game well. The investment style involves moving investments around and taking asset class views where often major churn can happen.
Germany - Between 1899 and 1901, prior to the formation of a national team, there were five "unofficial" international matches between different German and English selection teams, which all ended as large defeats for the German teams. This is the ugly history of 2014 Fifa World Cup champions.
Over the years, the German style has evolved -- three-man strike teams, quick counter attacks, moving into free space etc etc. In 2014, the World Cup scalp has come largely on the account of diversification, unity of the team and a good defence & midfield. Star players are rare. Its a machine. Screws, bolts, rods...you get the scheme.
If you were to mirror the German style as an investor, you would have to avoid keeping all your eggs in one basket. Diversify across assets (or different stocks). Thats step number 1.
The second step would be to develop a core portfolio. Remember, whether you are young or old, the core team in your portfolio would have to comprise of the right mixture of stocks and bonds. Bonds help you weather financial storms while stocks add that alpha to your portfolio.
The German football teams always have had good goalies. Be it Kahn or Neuer, good goalies are to a football team what conservativeness is to your portfolio. The trick is to play safe and play smart.
Lastly, the reliance on expert advice is paramount in the German portfolio. Coaches and professional advice is extremely important.
No matter that Rudi Voeller's side had reached the World Cup Final in Yokohama two years earlier, group-stage elimination from Euro 2004 was seen as proof that something needed to be done. Their football association built youth training centres across the country for 11- to 14-year-olds, national youth teams were professionalised...
You can always go wrong. Meander away. That is the time to use expert advice and ACT on it.
Brazil - Anyone who watched Germany tear into Brazil a few weeks back would surely take issue with that, and among Brazil fans there is a gradual acceptance that the country that once ruled the world was playing catch-up in its first World Cup on home soil since 1950. But the Samba beat was not always like this. Free flowing, creative and spontaneous. Power with passion. History the Scots gave the Latinos the football we see in Brazil today. Closed spaces. The deft handling of football and the light as well as heavy touches. Reams have been written. How do you replicate it, if at all, on the investment field?
Here's how. Investments are about money and putting them in a particular way. The Brazilian way hinges on attack. Allocate most money in stocks. Sure, the occasional market crash would spook you but stocks add alpha to your portfolio like nothing else does. The world's most loved soccer nation does not defend, much. Purists may complain so keep stocks allocation at 80 per cent. 10 per cent in debt and the balance 10 per cent in gold. Remember, just allocating a lion's share of your funds in stocks isn't that Brazilian way. That country depends on it's youth. Naturally, your Brazilian styled portfolio strategy will have smallcap and midcap stocks that have the potential to outsmart seasoned largecaps. Sure the risk is too much. But that's what Brazil is all about ain't it? No pain. No gain.
Make no mistake about it. They are a country of greats. Theirs is not a gentleman's game. It was never meant to be. When you adopt this style for your portfolio, be very careful. Typically, this will be a dynamic portfolio where you as the fund manager will take calls on assets both short term and long term and invest accordingly. You will not be consensus. There will be method in what others would call madness. You will buy when others sell. You will sell when others see a bull run setting in. The execution of your argentina-sque investment plan will not be dependent on just stocks or just debt or their combination. It will be on agility and nimble footedness. When markets turn turtle, you will quickly act. It is essential that you keep 25 per cent of funds free or not invested. These will help you encash opportunities when they throw themselves at you. Also, you will not depend in a Messi. That would be self-defeating as we saw in that football match. You need balance, at all times. Start out defensively but not afraid to make deep attacks when you see the goalie.
All investments should be done with expert advice. After all, an expert is an expert. Good luck.
As always, look forward to your feedback. Leave it in the comments section below. Till the next time.
