Ohio State Football & Investing-There Are No Gray Areas

Ohio State Football & Investing: There Aren’t Any Gray Areas

                                                          By: Brendan Magee

If you’re a fan of college football, you have surely heard about the recent troubles of the Ohio State football program.  Jim Tressel, the head football coach has been forced to resign (A position that reportedly  paid him $3.5 million a year and had four more years to go on his contract, ouch!) his position after admitting that he was aware of N.C.A.A. violations his players had committed. More importantly he failed to report those violations to his superiors when he became aware of them in April 2010. He came clean on what he knew in March of 2011.

The day after the school held a press conference with regards to these allegations, a college football analyst was asked if a school could consistently compete for national championships without breaking N.C.A.A. rules. The analyst responded that it depends on how much of the gray area a school wanted to stand in. In other words how much of breaking the rules do you think your school can get away with breaking and not get caught. The lesson here is that there aren’t any gray areas. You are either in violation of the rules and eventually face the consequences or your do not violate the rules.

This was a point that I was trying to get across to a client in a recent review. Now this client has been with me for over 10 years. He was disciplined enough to live through the bear markets of 2000 to 2002 and 2008. His portfolio has done twice the rate of inflation and there isn’t anything coincidental about his success. His portfolio has been properly diversified, has been rebalanced when necessary, and most importantly never has he tried to time the market. Again, follow the rules and good things eventually happen, break them and bad things eventually happen.

Now during our review he mentioned as he has in the past that in 2002 being diversified worked as indicated by his returns relative to the market. However, 2008 all the indicators were such that it made sense to have moved his money to a less volatile portfolio after having absorbed some losses and then after the  market had gone back up, go back to his original portfolio. He mentioned that not only did it make sense to at times be open to these kinds of moves, but also, when you feel the heat of forty percent losses it made it really difficult to not consider some alternatives.

This is where we have to really examine what the alternatives are and make certain we do our best to eliminate that breaking the rules becomes the better alternative. We have to do this now because once in the fire, it’s practically impossible to stop yourself from being convinced that the wrong move isn't the right move.

The critical points I want to make here are these:

-It made no difference what thoughts were going through this man’s mind. The important thing is he never acted on them. If he did his two times the rate of inflation return most likely would be closer to even with it. Despite what he was thinking he didn’t act on it.  He didn’t violate the rules for successful investing.

- Before rules are broken a lie is accepted. The Ohio State football players and coaches said the rules do not apply to me or believed no one will ever find out. Next, they are accepting cash for sports memorabilia  and getting tattoos and the coaches are in the midst of a cover up.  An investor often times says this time it’s different and gives themselves the go ahead to sell low/buy high.

-There aren’t any coincidences. Ohio State football is being punished because it broke the rules they agreed to abide by. Investors who aren’t happy with their portfolio’s results have most likely broken a rule they agreed to abide by. Investors who are happy with their results consistently abided by the agreed upon rules.  

-The best way to make sure you consistently follow the rules is to accept that on your own you will not consistently follow the rules  and create a team of people around you who will keep you on the straight and narrow.

Brendan Magee is the founder and president of Inevitable Wealth Coaching in Drexel Hill, Pa. With questions, comments, or suggestions call 610-446-4322 or e-mail Brendan@coachgee.com. You can also listen to him on the Investor Coach’s Show on am1340what or on the internet at www.am1340what.com.