Pro golfers never haphazardly take a swing at the ball without taking into account the risk-reward inherent in every shot. They devise a tactical plan to conquer each hole. They contemplate whether to lay-up and play it safe or attempt to weave some magic and take an aggressive hazard riddled, yet more direct, flight to the hole.
A good financial advisor uses the same mental playbook to achieve a client’s investment goals: he or she always keeps the flagstick in mind while periodically re-examining the lay of the course in order to make sure a margin of safety exists in case the going gets rough. A client’s appetite for risk is factored into every capital allocation decision.
“There certainly is a relationship,” concurs RBC investment adviser Tom Merifield, an 8 handicap, on the link between one’s risk tolerance in the game of golf and in investing in the markets. “I can honestly tell more about somebody in 10 minutes playing golf with them than I can doing anything else.
“I was a competitive golfer as a junior and I know my limitations. I’m not Tiger, if I’m in a match or a best ball game if it’ll take 280 yards to carry over the water— I’m not going to go with the magic shot. I’m going to play the percentages”
Merifield’s personal investing philosophy mirrors his approach to tournament golf. “My core holdings are stocks like Shoppers Drugmart (TSX: SC.TO) and Royal Bank (TSX: SC.TO), pretty boring stuff. I’m always aware of what could potentially happen and prepare for the worse case scenario.”
Your Money & Your Brain author Jason Zweig has a differing perspective. He contends that there is little scientific research to support that risk-seeking or risk-avoidance in one aspect of one’s life carries over to another. “If you are a professional Hollywood stuntman who takes constant physical risk, you are not very likely to invest in volatile assets; you may even prefer not to, since your human capital is unusually risky” reasons Zweig.
“I would not necessarily expect that a 'conservative' golfer would have a safety-first investment portfolio, nor an 'aggressive' golfer a gung-ho risky portfolio. He or she might simply prefer to be conservative on the links, but aggressive on the exchange.”
While a golfer's investment decisions may not perfectly correlate with their golfing style, his or her personality may translate into their choices as an investor, or vice versa, as indicated by certain anecdotal evidence.
“There is an uncanny correlation between the way a golfer manages his way around the course and the way they approach their investment portfolio,” says Barbara Ross, a CFA and portfolio manager with Cumberland Private Wealth Management.
Golfing with investors over the years, Barbara notes a couple standout investor profiles that she has seen manifest themselves on the golf course. The first are etiquette conscious elegant players, highly strategic, who view each shot in the context of the entire game.
“The same gentlemen golfers make high quality investments and consistently follow a well-thought out plan that makes sense in the context of their objectives. Each stock (like each golf shot) has a role to play in their portfolio,” says Ross.
Then there are also “hackers” with shorter attention spans and willy nilly course management.
“The hacker investors continuously chop and change the content of their portfolio and don't give individual stock ideas the time they need to play out.”
The above story of mine first ran in Golf Canada magazine.