The San Antonio Spurs just dispensed of LeBron James and the defending champion Miami Heat in five games in the 2014 NBA Finals. They did so in impressive fashion with another lopsided victory en route to their 5th championship.As a financial advisor and avid sports fan, I couldn’t help but reflect on the past decade and a half of excellence by the Spurs and how we can apply their model to investing. I believe that the following five strategies employed by the Spurs should also be remembered when investing.
Even the casual NBA fan can tell you they’ve heard this a hundred times. “The Spurs are boring.” Today’s SportsCenter culture loves the “Lob City” LA Clippers with highlight reel dunks and above the rim hijinks. There’s no doubt that’s it’s a lot more exciting to watch a lob being slammed down by the likes of All-Star forward Blake Griffin or DeAndre Jordan than a perfectly executed back door pass.However, basketball purists appreciate the beauty in watching the Spurs play. Power forward and undisputed first ballot hall of famer Tim Duncan is known as “The Big Fundamental”. Duncan earned his nickname not because he makes rim shaking dunks (which he does on occasion), but because of his relentless attention to detail and the way he plays the game the “right way”. His teammates have followed suit. The result has been more than 15 years of excellence for both Duncan and the Spurs.
If you have a few minutes, The Beautiful Game: A Spurs Tribute will help illustrate the point I’m trying to make.As I’ve mentioned before, successful long-term investors more often than not employ a “boring” approach. If you talk about foregoing a hot IPO stock in favor of a globally diversified portfolio based on academic research at a party or on the golf course, you’re going to get some yawns. (Speaking of globally diversified, 9 of the Spurs 15 players are internationally born). To further illustrate that it’s boring, when my wife is having trouble sleeping, she asks me to talk about my thoughts on investments. That knocks her right out.
In the world of investments, as in the NBA, being “boring” can be a beautiful thing. “Boring” eliminates unnecessary risks and distractions, helping keep you focused on achieving your goals.
The Spurs only had one All-Star this year, and only one player named to the All-NBA Team: point guard Tony Parker. Yet the team as a whole had the best regular season record in the NBA this year and demolished The Heat in five games in the Finals. How were the Spurs able to consistently win in a league that puts a premium on the “Superstar”?The Spurs have built their franchise through drafting wisely. Duncan, Ginobili, and Parker complement each other brilliantly, though their sizes and strengths are very different. Furthermore, the Spurs intentionally seek out players to fill specific roles. They draft players like soft-spoken Finals MVP Kawhi Leonard (via draft-day trade) and Brazilian center, Tiago Splitter. They make unheralded acquisitions like Boris Diaw, Patty Mills, Marco Belinelli and Danny Green, all NBA journeymen. Yes, Green, who had been cut a number of times – even once before by the Spurs!Most of the players can shoot well, some can rebound well, some can block shots, some can play lock-down defense. The common thread amongst all those players is that they can pass well. The point is, each player has a specific reason for being on the team. The Spurs don’t have a lot of guys that would excel in one-on-one basketball compared to most NBA teams. However, the organization understands that the most important thing is not how good their players are at one-on-one, but how they perform as a team.The same is true in investing. We never know from year to year which asset class will perform best (as illustrated on page 7 of a recent Dimensional report). (Full disclosure: Dixon Hughes Goodman Wealth Advisors recommends Dimensional Funds in constructing client portfolios.) Because of this, when choosing an investment to put in their portfolio, investors should evaluate any investment on its effect on the portfolio as a whole, not just that individual investment’s risk/return characteristics.For example, the Spurs front office didn’t choose to add Boris Diaw to their roster because they thought he could beat LeBron James in a game of one-on-one. They were counting on his versatility and ability to pass to allow other players to flourish when he is on the floor. Likewise, when an investor adds emerging market stocks to their portfolio, it shouldn’t be because they feel emerging markets will outperform other asset classes in the coming year. Rather, it should be because emerging market stocks have a tendency to perform differently than stocks from developed markets and because they increase the risk-adjusted expected return of the portfolio over relatively long periods of time (5 plus years). The same methodology holds true for any asset class, not just emerging markets. The question should be: “How will adding this investment/asset class affect the risk and expected return of my overall portfolio?”
Of course the Spurs worked hard to reach the pinnacle of the NBA. It’s obvious that the fine-tuned machine that is the Spurs offense took hours upon hours of practice. However, the Spurs aren’t a prolific offensive team because they are bigger, stronger, and faster than other team. There is a method to their madness. They know that nobody can outrun the basketball, nobody, no matter how fast, or how strong can consistently beat five teammates working together in unison.In investing, we see a similar phenomenon. No matter how much time you spend poring over financial statements, reading investment reports, or watching CNBC, it has been proven that it is virtually impossible to consistently beat the market over long periods of time. Instead of spinning your wheels as an investor trying to find the next Google, why not harness the power of capital markets and let them work for you? By designing a portfolio that utilizes low-cost, tax efficient investments that seek to capture the returns of the market, you are in essence, giving yourself the best shot possible at higher risk-adjusted returns in your investing life.By working smarter and not obsessing about beating the market, you have the added bonus of being able to devote more time to your own career, your family, and your hobbies. (Trust me, watching the financial news as a hobby generally does not make people happy.)
Ahh, humility. It really is a concept largely lost in both sports and investing. So lost, in fact, that when it shows up, it is viewed as weird or boring. The Spurs are a breath of fresh air for a sports culture that reveres touchdown dances, bat flips after home runs, and cute three-point shot celebrations. In fact, when asked what quality he looks for in players that he drafts, Coach Popovich responded, “We draft guys who have gotten over themselves.” Humility is thoroughly ingrained in the culture of the Spurs. Their motto is “Good to Great”. In other words, you may have a good shot, but your teammate could have a great one. It is evident that everyone on the roster has bought in to this mentality. Not only do the Spurs players forego individual accolades and stats in favor of what’s best for the team, but their sportsmanship and respect for the opponent points back to their collective humility. Not once in my time watching the Spurs, did I see any finger wagging, taunting, ear blowing or any other act of poor sportsmanship that is so prevalent in American sports culture today.
Investors would be wise to take a page from the Spurs playbook. Overconfidence is one reason why Wall Street profits seem to continually rise, yet investor returns continue to lag the returns of the funds they invest in. Financial author Larry Swedroe has detailed some of the mistakes investors make due to overconfidence in this CBS MoneyWatch Article:
As you can see, humility can be one of an investor’s best friends. (It just doesn’t sell books, commercials, and products as well as overconfidence does.)
Spurs head coach Gregg Popovich started his run with the franchise in 1996 while the team was already 18 games into the season and sporting a dreadful 3-15 record. They finished that year 20-62 (the exact inverse of the 2013-2014 record). Since that time, the Spurs have won five titles and have never finished with below 50 wins in a non-lockout shortened season. From the beginning, Coach Popovich instilled a team-first philosophy and has stuck with it for over a decade and half.
Sustained greatness in the NBA usually comes with a coach at the helm who sticks to a particular philosophy (see also Phil Jackson and Red Auerbach). Unfortunately, nowadays it’s more typical for NBA teams hire a coach who will cater to their superstar’s every whim – an approach which doesn’t build long-term loyalty amongst all the players, nor does it foster the kind of teamwork needed to maintain excellence.Likewise, in investing, it is important to hire the right “coach", or advisor in this case. A good advisor will help you design a plan that fits your specific tolerance for risk and has your goals in mind. Any advisor worth their salt will have a philosophy and stick to it regardless of what is popular in the financial media. A good advisor, will not be enticed by all the latest investing fads, but will ground their advice in empirically proven, peer-reviewed, academic research.
It’s human nature to be blind to our own weaknesses. Like Coach Pop, a good advisor can spot your weaknesses and keep you on track.
Philip joined DHG Wealth Advisors in 2013 and launched the firm’s Memphis, TN Practice. As a financial advisor, Philip provides financial planning and investment advice to individuals and specializes in working with physicians and healthcare professionals.
Philip also works with the Retirement Plan Services Team to provide investment advice for both corporate and non-profit organizations’ retirement plans.
Philip is a Certified Financial Planner™ professional and holds a Certificate in Financial Planning from Southern Methodist University and a B.A. in Business from Principia College. He enjoys helping his clients create a values-based plan that allows them to spend time on things they are passionate about.