Looking to lower your handicap and raise your net worth? The game of golf has many parallels to investing. If you can master the four elements below, you’ll see a marked improvement not only on the golf course but also on your road to financial independence.
Who’s your competition? – In the game of golf, you compete with yourself. Knowing your own strengths and weaknesses puts you in a position for success. Should you go for the green from 210 yards out or lay up? In your daily financial life, as in golf, what you want to do and what you should do aren’t always aligned. For most people, the road to financial freedom is paved by spending less than you earn while saving and investing for many, many years. Your primary competition in this process is yourself.
Focus – Have you ever stepped up to the tee box, noticed the lake in front of you, told yourself not to hit it in the water, then proceeded to do just that? The financial equivalent happens when you notice the short-term movements of the market, especially when those movements are to the downside, and react. Don’t miss the forest for the trees; pay attention to the big picture and work the long-term plan you have. You have a plan, right?
Regroup and move on – A bad shot can spoil a good round and a great day. The same goes for a bad investment. Don’t let one bad decision turn into two or three or six. In the investing world, this means not throwing good money after bad. At P&A, we have a “down 20%” rule that tells us to sell an investment if it’s down 20% from the purchase price. This takes the emotion out of the process and prevents us from falling in love with a company or stock. To summarize, cut your losses, learn from your mistakes, and don’t look back.
Keep good counsel – If you mention to a fellow golfer that you can’t figure out why such-and-such is happening (why you slice the ball, why you hook the ball, why the ball is still sitting on the tee after a swing, why the divot went farther than the ball, etc.), they will mostly likely give you some advice, even if they are a 30 handicap. Investing is the same. You’ll get investment and financial advice from a lot of people if you just ask (and sometimes if you don’t). But what qualifies them to give the advice in the first place? How many years of experience do they have? Are they a CFP or CFA? Be discerning when it comes to asking for and taking advice. Listen to those who have demonstrated they know what they’re talking about.
The four principles can be summed up as follows: Don’t beat yourself, focus on your long-term plan, cut your losses, and be careful whose advice you take. By recognizing and following them, you will see a marked improvement in your financial life, and if you’re a golfer, on the course as well.