Broker Check

Basketball and the Stock Market

| April 08, 2017
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It seems that most people love attending events that spawn intense rivalries or fierce competition or both.  I think of rivalries like the Boston Red Sox and Cincinnati Reds in the 1975 World Series, arguably, the best World Series ever.  Boston Celtics and the LA Lakers were the biggest basketball rivals in the 1980’s.  The Dallas Cowboys and the Philadelphia Eagles continue to be big rivals in football.  Whatever your sport, we like to see successful execution, an emergent star, and a close game.  The sport that I like best, with the contention of having the best athletes in the world, is basketball. 

Investments, like basketball, have similarities if you haven’t noticed.  How, you might ask?  Well, take a look at these commonalities:

  • Slam Dunks – Sometimes, the market allows us to drive down the lane, explode to the basket, and slam the ball through the hoop with a two-hand jam to experience a great return on our investment. This reflects buying a company that you like, for various reasons, and then another bigger company comes along buys it out.  Your investment just exploded in price.  As with a slam dunk in a game, owning a company that is being bought out should give us a great feeling of excitement and accomplishment
  • Play Makers – A point guard is usually the player that calls the plays and makes things happen on the court. Owning companies with a great CEO and executive team will allow us to score with great regularity and consistency. 
  • Defense – After a score or turnover, a team must go on the defense trying to steal or stop the other team from scoring to protect the lead. The market, at times, may dictate to us that it is time to play things defensively and protect what we have gained.  Owning stocks like defense contractors or utilities are common ideas because they usually do well in all kinds of market conditions.
  • Rebound – After someone shoots the ball but misses, someone is going to rebound the ball and move it down court to try and score. One of the main objectives is to dominate offensive and defensive rebounds and the team that does, usually wins the game.  Rebounds in the stock market are a relief to have happen, especially after a recession.  I am happy to say that our markets are quite resilient.  To date, we have a 100% track record of markets rebounding from a recession and moving farther ahead than they were prior to the recession.  If we know this going into the investment of a good company, then what is there to worry too much about?
  • Foul – Fouls are infractions, penalties, and sometimes, intentional acts to try to keep the other team from scoring. Owning stock in a company is a good thing to do to help you grow your money.  However, sometimes and by no fault of ours, we are faced with a tough situation of a stock declining in value because an accountant, the marketing department, or executive team did something wrong to make the stock lose value.  If you invest long enough, you may live through an accounting scandal or a product defect.  These fouls were not your fault so you need to learn when to cut losses and know when to hold on. 
  • Traveling – If a player takes more than two steps without dribbling the ball, that player travels and they must give the ball to the other team. We, as investors, must stay in control of our game.  Control the factors you can.  Things we can control are the consistence and amounts of how much money we invest.  Having money to invest, especially while going through a down market, helps us to buy more shares at lower prices, the catalyst for wealth building.  We can also use Nobel Prize winning academic research that tells us stocks outperforms bonds consistently, value outperforms growth consistently, small companies outperform large companies consistently, and profitable companies outperforms less profitable over time.  There is a premium of return, over time, if you control these factors when you invest.  We can control where we place our money. 

I’ve had some fun in this post, however, if you don’t know how to invest in individual stocks, there are low cost mutual funds and ETFs that may be better options so you don’t have to rely on a few individual companies for all of your return.  Let Snow Financial Group, LLC help you.  Send us an email or schedule an appointment.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Snow Financial Group, LLC is not affiliated with Kestra IS or Kestra AS.

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