Investing Lessons from the 2014 Sugar BowlSubmitted by Legacy Financial Group on January 3rd, 2014
I have a client who is a big OU Sooner fan. I mentioned to him my hope that OU would stand a chance against the heavily favored Alabama Crimson Tide to which he responded in jest, "I hope you aren't putting MY money on an upset." After the game I could not help but see the parallel to this year's outcome and how people actually think about investing for retirement.
Alabama was a 15 point favorite and who could question that spread. They had won 3 BCS National Championship games in the past 4 years and, if not for the amazing final play of their game with Auburn, would have been playing for the National Championship again this year. They were led by a highly decorated senior quarterback and were going against a team that could not fill the QB position consistently all season.
The ESPN analysts sitting at the table prior to the start of the game all seemed surely confident in their predictions of an Alabama victory. It may be close for a few quarters, they said, but Alabama would definitely pull away in the end. It clearly seemed like a sure bet to pick Alabama to win. And then everything went entirely different.
It was at half time that the connection to investing hit me so strongly. The same analysts who were so sure before the game were now explaining what was happening. Alabama must of had too much time off, but Trevor Knight clearly had just enough. Or AJ McCarron was uncharacteristically frazzled in the pocket. There was long lists of unexpected happenings the analysts could not have seen coming. It reminded me so clearly of the Wall Street market pundits. Every year they come out very confident in their predictions and tell you exactly where to invest your money for the highest return. Then, half way through the year, they show back up having been terribly incorrect and have to explain why "no one could have foreseen what happened" and that "under normal circumstances they would have been right."
And here is the key takeaway: Just like investing, NCAA D1 football is extremely competitive. The top teams are so close in skill level it is nearly impossible to be consistently sure who will win from year to year. Now imagine at the beginning of each season you were forced to bet your entire retirement on either A) Who will win the national championship or B) The collective awesomeness of NCAA D1 football (which we all know just about prints money it is so lucrative)?
This is the same choice you can make for your retirement each year. You can bet on who can pick the best stocks or time the market most effectively over the next year (and I can assure you managers' track records are far, far worse than OU or Alabama football). Or you can invest in the collective power which is capitalism. The market will not be up every year, but over time it is the most powerful mechanism for increasing long term purchasing power.
So when you think about retirement you can either bet the farm on Alabama. Or purchase a piece of the collective success of the entirety of NCAA Division 1 Football. The answer seems obvious to me.