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Affluent Christian Investor | September 21, 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.

David L. Bahnsen, CFP®, CIMA® is the founder, Managing Director, and Chief Investment Officer of The Bahnsen Group, a private wealth management boutique based in Newport Beach, managing over $1 billion in client assets. David has been named as one of Barron’s America’s Top 1,200 Advisors as well as On Wall Street’s Top 40 Advisors Under 40 and Financial Times Top 300 Advisors in America. He brought The Bahnsen Group independent through the elite boutique fiduciary, HighTower Advisors, in April 2015 after eight years as a Chairman’s Club Managing Director at Morgan Stanley and seven years as a First Vice President at UBS Financial Services. He is a frequent guest on CNBC and Fox Business and is a regular contributor to Forbes.

David serves on the Board of Directors for the National Review Institute and the Lincoln Club of Orange County, and is a founding Trustee for Pacifica Christian High School of Orange County.
David’s true passions include anything related to USC football, the financial markets, politics, and his house in the desert. His ultimate passions are his lovely wife of 15+ years, Joleen, their gorgeous and brilliant children, sons Mitchell and Graham, and daughter Sadie, and the life they’ve created together in Newport Beach, California.

 

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