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As we begin the World Cup and England expects great things, I thought I’d spend a moment reflecting on all the things being a portfolio manager could teach Thomas Tuchel about managing our national team, conveyed through the medium of asinine sporting clichés.
You make your own luck
Whether you’re at training practicing free kicks or reading research reports until your eyes glaze over, there is a positive relationship between effort and outcomes. It’s an unreliable one, and there will be months, or even years, when flipping a coin might have a better hit rate than rigorous analysis, but trust the process.
The best form of defence is attack
When you can’t catch a break, it’s easy to sit back and de-risk. While this might be the right thing to do in the short term, you have to maintain an attacking presence, even as you regroup. If you’ve sold down to cash and there’s no striker in the box when an unexpectedly good cross comes floating in, then no one can nod it in at the back post. You would have been better off not changing anything and riding out the tough spell instead.
You can only beat the team in front of you
Remember what you came here to do. The game of football, like investing, isn’t to go on a moral crusade against the establishment. No one really cares if you were right in principle but not in practice, so whether it’s the referee or the Bank of England getting a decision wrong (in your eyes), they are calling the shots, so manage accordingly.
Timing is everything
Being early (or late) is the same as being wrong and often the way you execute an idea can be more important that the idea itself. Much like predicting a market crash that doesn’t happen for several years isn’t enormously helpful, the second-best pass - or even a vaguely acceptable pass - at the right time is miles better than the ‘perfect’ ball a few seconds too early or late. Of course we are not dealing in seconds as long term investors, but you have to appraise both the pitch and the investment landscape as it really is, not how you wish it was or used to be.
You’re only as good as your last game
This is where football and investing diverge. There will be a time during a World Cup when you should throw everyone forward to get a last-minute equaliser. Maybe it doesn’t pay off, you concede, and football remains on extended holiday in Argentina, but that result doesn’t define you as a failure, you still made it to the final. A game is discrete event and when the time is right it is entirely appropriate to throw your risk management framework in the bin to get the win. The same can’t be said as a fund manager. You could have years of top performance, but if you blow up and lose everything then what was it all for? This is why it so important not to become overconfident. Investments, like players, have hot and cold streaks. Making the most of a hot streak is great, but if you throw caution to the wind and end up in the equivalent of a 0-0-10 formation then, when your luck runs out, the wheels will fall off in a spectacular fashion.
So there it is Thomas, your recipe for England World Cup success, sort of. Good luck and always remember the sage words of the great England striker (but questionable pundit) Michael Owen: “whichever team scores the more goals usually wins”.
Key takeaways
- Stay disciplined and trust the process - Effort and research don’t guarantee results in the short term, but a consistent approach is still the best path to long-term success.
- Avoid overreacting in tough markets - De-risking too aggressively can mean missing opportunities – maintaining some exposure is essential to benefit from recoveries.
- Risk management matters more than short-term wins - In investing, one major loss can undo years of good performance, so avoiding overconfidence and protecting downside is critical.
CJ Cowan
Portfolio ManagerCJ is a portfolio manager of the Quilter Investors Cirilium and Monthly Income Portfolios. CJ joined Quilter Investors in August 2018 from Aberdeen Standard Investments where he worked in the global macro team, managing global government bond and global aggregate portfolios.
CJ is a CFA charterholder and has also completed the Chartered Alternative Investment Analyst qualification. CJ has a degree in economics from the University of Bristol and an MPhil in Economic and Social History from Brasenose College, University of Oxford.
