World Cup Rugby Has Started! Go Bokke!

What a fabulous opening ceremony and a good victory for the hosts. We at Silke wish our boys in green all the best of rugby!

As broadcasted this morning on KFM, "Silke Financial Services are all dressed in the same Springbok tee shirts and windbreakers. We have a Springbok build-a-bear-bokkie sitting in our front office and if you press his paw, he roars like a lion."

So the real question is? Is it possible that rugby and investing can actually have something in common? Strangely enough the answer is yes.

It is not by accident that most world cup winners are normally the best defensive sides in the competition. The team that plays their way to the final not by a raft of "big gain" tries, but by primarily not letting the opposition score, and then steadily accumulating points when in attack by a variety of methods. A winning strategy adopted by the eventual 2007 world cup winners, (South Africa - Grier I had to get that in).

Without getting too involved with rugby strategy it is generally considered that New Zealand and France approach the game from the other direction. Both teams are credited with playing exciting, expansive and attacking rugby with the philosophy of scoring the big returns (i.e. tries) as the means to achieve their objectives (i.e. winning games). While that approach has been spectacularly successful at times, and resulted in some very big wins, (i.e. NZ thrashing Australia in early in 2003), it is notable that it has not resulted in either team achieving their ultimate objective over the previous four world cups. How does this apply to the world of investment?

Long term investment objectives are achieved via strong defence first. Controlling risks in your portfolio and avoiding big losses in our investments, (reducing the chance of "tries" being scored against us), is the cornerstone. Once you have that under control then steady accumulation of returns, using a variety of methods/investments, results in our long term investment objectives being reached (i.e. "boring" investing).

The analogy of the "expansive" game in the investment world would be an approach focused on achieving the big short term returns from your investments, (i.e. going for tries). The investment stories of people achieving 100% returns in a few months are "exciting", they are the stories that make the news headlines, and are the people we want to watch and listen to. While we would all like to believe this is possible, and no doubt there has been the odd success achieved, just as in the rugby, the vast majority who pursue that high risk/ high return approach do not achieve their long term objectives as the gains fail to materialize, (i.e. no tries), or the odd big loss destroys their capital.

The conclusion to be reached from the rugby world cup is that an investment process built on defence first, controlling risk, and then steady points accumulation, "boring rugby", is the way to achieve your objectives, (investment or rugby), rather than the exciting but less effective chase for the big points/gains.

Source: AAM Advisory