Bob Hope putting in the Oval Office. Photo: Oliver Atkins. Source: National Archives.
That’s an old golf saying – attributed to Bobby Locke, the South African golfer dominant in the ‘40s and ‘50s. He won the British Open four times in eight years. He was so good that he was banned from the PGA Tour. He didn’t drive the ball very far from the tee, but on the putting greens he was a genius. He had an unorthodox style that put a tremendous amount of overspin on the ball, and he had a great eye for reading breaks.
Putting isn’t very flashy or photogenic. It doesn’t generate those iconic images of golfers with a club over the shoulder, staring down the fairway. But skill on the greens can take a lot of strokes off your score. After all, on an average golf course you use your driver 14 times or so, and your putter 30 or 40 times.
In investment management, there’s a similar expression: forecasts are for show, investment policy and asset allocation are for dough. It’s exciting to talk about what the market is doing, what the next challenge is for the economy, what Washington might or might not do with tax policy. Forecasts get featured on in the papers and on financial news shows. It’s wonky to get into earnings and revenue projections for the entire market and for individual securities.
But it’s in the nitty-gritty of investment policy and financial planning that the real money is made. What’s the money for? Could we tolerate a 50% downturn? How quickly will we need to use these funds? These kinds of questions don’t make headlines, but they’re the real money-makers for individuals and institutions putting cash to work in the markets. It’s been estimated that asset allocation is responsible for 70% to 90% of the variation in investment portfolio performance.
So don’t get freaked out by the latest news about North Dakota’s budget problems or Chinese industrial production or some mega-store’s earnings-per-share. These things are interesting, but what really counts how our investments fit into our lives—or our organization’s income and expenses. In other words, what our investment policy is. That’s the simplest way to take “strokes off the game” in finance.
Because it doesn’t matter that much how far you drive off the first tee. It’s the final score that counts.
Douglas R. Tengdin, CFA
Chief Investment Officer