What Michael Phelps Teaches Us About Absolute Return Investing
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.