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Affluent Investor | July 23, 2017

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What Michael Phelps Teaches Us About Absolute Return Investing

Michael Phelps and Chad le Clos (Photo by David Ramos/gettyimages) (Resized Cropped)

Michael Phelps and Chad le Clos (Photo by David Ramos/gettyimages) (Resized/Cropped)

It’s just a picture, and one of many that this first week of Olympic action has created. There has been no shortage of photo-ready moments between the U.S. women’s gymnastics dominance, the collection of swimming medals, and so many other moments for these elite U.S. athletes (who surely are nowhere near done with their medal pile-up). But this picture provides a beautiful image that I just had to tie into a pivotal investing principle of The Bahnsen Group.

This picture shows the key butterfly stroke rival of Michael Phelps, the South African Chad le Clos, looking over at Phelps as Phelps looks squarely ahead, exclusively focused on winning his race. Phelps went on to take the gold medal, and the favored le Clos managed to not medal at all (unable to place in the top three). The message from this picture anyways is – one swimmer was focused on the other swimmer; the winner was focused on, well, his goal of winning.

We have preached since 2001 that are two types of investors: Absolute Return investors, and Relative Return investors. One cannot be both at the same time. You are either focused on the absolute goal of a financial portfolio that accomplishes what it needs to accomplish for you and your family’s financial needs, economic goals, and lifestyle aspirations, OR you are focused on a relative game with an elusive benchmark – losing by less than a peer group loses, or winning by more than a benchmark wins. To say that you want to be absolute focused when the market is down but relative focused when the market is up (the natural desire of all of us, of course) is to wish that we can eat all the ice cream we want and never gain weight. The difference in character between an absolute and relative investment approach is categorically different. One looks straight ahead at the wall, knowing that at some point they will be beating others and other points they will be lagging, but stays focused on the goal of delivering the investment result a specific client needs, tailored to their goals, their income needs, their risk appetite, their tax profile, their transfer plans, their timeline, and their underlying objectives.

The other claims to care about accomplishing all those things, but then permanently seeks to measure progress by looking lane to lane in the pool, never realizing until it is too late that out-performance segment-by-segment is a silly and elusive goal, and that by the time they realize they need to swim ahead with purpose, they have lost the race.

Thank you, Michael Phelps, not only for being the greatest Olympian in history, but for reminding us this week that we are absolute return focused, we are goals-oriented, and ultimately, we are committed to bringing our clients to the wall. Successful investors don’t receive a gold medal, per se, but they do receive the fruits of a plan well-designed. To this end, we work.

 

Originally posted on HighTower Advisors.

“Moral Capitalism”
David L. Bahnsen, CFP®, works as a Senior Vice President in the private client group of one of the premier Wall Street firms in the country where he provides financial planning and investment management services to individuals and families. He and his wife of nearly eleven years (Joleen) reside in Newport Beach, CA with their seven-year old son, Mitchell, five-year old daughter, Sadie, and 2-year old baby boy, Graham. He is an active board member of the Lincoln Club of Orange County where he serves on the Executive Committee and chairs the Program Committee. He serves on the Board of Advisors of Dr. Art Laffer’s California Recovery Project with the Pacific Research Institute. He has recently been appointed to the Board of the Concordia University Center for Public Policy. He also serves on the Blackstone Faculty of the Alliance Defense Fund and is a Cooperating Board member of the Center for Cultural Leadership where he is the Senior Fellow of Economics and Finance. He is a member of the Investment Management Consultants Association (IMCA), and holds numerous financial designations and licenses.

David is a disciple of Milton Friedman, a lover of Ronald Reagan, and a “National Review kind of conservative”. His writings strive to reflect an ideology of freedom principles integrated with transcendent truths. His hero is his late father, Dr. Greg Bahnsen, but he is pretty fond of John Calvin, Abraham Kuyper, F.A. Hayek, Winston Churchill, C.S. Lewis, William Buckley, Margaret Thatcher, George Gilder, Steve Forbes, and Larry Kudlow as well.

Hobbies include travel, fine dining, golfing, and sports. His true passions in life include anything pertaining to USC football, the financial markets, politics, Palm Desert, his gorgeous and brilliant children, and his lovely wife, Joleen.

 

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