Don’t Lose the Lead
It’s the third Friday, which means it’s our third and last guest sports blog!
Guest post by Daniel McGilvray, vice president of investments, Highland Capital Management
During the U.S. Open at Pebble Beach a month or so ago, Dustin Johnson lost a three shot lead going into the final round on Sunday and actually ended up outside of the top 10. Justin Rose followed the week after at the Travelers Championship by blowing a three shot lead over the rest of the field and did not end up even coming in the top five. Both of them seemed to lose the strategy that got them to the top of the leader board in the first place. They went from making great shots to getting cautious to making horrible shots to try to make up for the cautious shots and losing the lead. Contrast that with what happened this past weekend with a virtual no name in golf: Louis Oosthuizen. He went into the final day of the British Open at St. Andrews leading by four strokes and actually EXTENDED his lead by a few strokes on the final day. While he adjusted his strategy to be slightly less risky, he stuck with his overall game and did not get too cautious.
It can be the same way at times in investing…we stray from our originally intended strategy because things get “too bad” or there’s a new “normal” or new “paradigm”. At Highland, while we make tactical over weights or under weights at certain times, we work hard to come up with the right strategic targets for clients as the anchor to ensure that the underlying investments do not stray too far from target (high or low) and get too far away from the originally intended strategy. Without those “anchors” to make sure you don’t stray too far from the original strategy, you could easily end up losing all the gains you’ve made and possibly even going below what you originally had if there is no process to assure some money is taken off the table and gains are harvested (or that funds are added to those areas that underperform over an extended period of time).
In this manner, an investor can ensure that they do not lose the lead (or are unable to ever get back losses). An obvious example of this is the advisor/investor who gets conservative near the bottom of the markets or aggressive near the top of the markets. Bad timing in either account can cause losses to persist. So remember, stay anchored to your long-term strategy.
