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Manage Your Money Like the Patriots

Bill Belichick would have been an excellent financial adviser or investment manager.

Regardless of your feelings about the Patriots and coach Belichick it is impossible to argue with the sustained success they have been able to maintain since he took over as coach for the team in 2000.  No other football team, or team in any sport, for that matter, has seen the kind of consistency the Patriots have experienced for such a long period of time. Taking into account the salary cap rules that exist in the league today, what Coach Belichick has been able to do for the past 16 years is quite amazing. Over that time span they have won 13 division titles (next closest is the colts with 9), 6 conference championships (next closest is 3, done by 3 teams) and 4 Super Bowl titles (next closest is 2). So what does this tell us about investing and what lessons can we learn from Bill Belichick and the Patriots to make us all better investors?

The trait that overrides everything the Patriots do is discipline.  Whether they are signing new players or creating a weekly game plane, coach Belichick has a rare ability to remove emotion from the decision making process. He is not swayed by personal relationship with his players or other emotions associated with particular opponents. This same discipline should be the cornerstone of any investment strategy.

Coach Belichick is loyal to his players but he also understands that in order to maintain long term success he must be willing to make difficult decisions when it comes time to extend a player’s contract or trade a player. There are numerous examples of times that the Patriots didn’t re-sign a loved, star player, most recently when they let Vince Wilfork go to the Texans or traded Chandler Jones to Arizona. In the investment world it is very easy to let emotion get in the way of making a rational decision. Emotion should play some role in the planning process but when it comes time to make a final decisions, facts and rationality should be the driving force. You can love a stock/company and be loyal to a stock while you ride it up but there can come a time when even the best stock becomes over valued and it is time to trade that stock for another opportunity.

The Patriots also have a unique ability to not overpay for players or sign players when they are overpriced.  They will pay for value when they think it is there (which I will touch upon later) but they very rarely pay a premium price for a big name free agent without at least structuring the contract in way to minimize the salary cap implications. This has an obvious correlation to the investment world. We often hear investment pundits and the media fall in love with this stock or that.  There’s always the next big company or the next hot stock but the smart investor ignores this noise and only purchases a stock when its value exceeds its cost.  In this arena, it is quite clear that Belichick understands the thinking of investor Warren Buffet: “Price is what you pay, value is what you get.”

of the 2015 AFC Championship Game at Gillette Stadium on January 18, 2015 in Foxboro, Massachusetts.

Building off of this premise, the patriots understand that it is not one or two big name players that lead to a successful team but a portfolio of a number of different complimentary players that allow a team to be successful over the long run. They diversify their talent across all the facets of the game.  They may not have the best player at every position (besides quarterback) but the combination of a lot of really good players puts them in a position to win on an ongoing basis. Across the league there are teams that are able to put together a group of star players that allows them to be successful for a year or two but that model is rarely sustainable.  Belichick has found formula that allows him to put out a successful team every single year.  This type of diversification is the key to long term investment success.

Coach Belichick also has an innate ability to understand the risk-reward profile of a player, especially free agents. Time and time again he has been able to take a cast off from another team or a player that has fallen out of favor and maximize the value he receives from them.  He is able to identify talent and structure compensation packages that limit their financial risk while still providing for upside potential. Now he is not always successful with these project players but by limiting the financial risk he is able to create incredible value when they do work out. When creating a portfolio or deciding whether to invest in something, understanding the risk-reward profile of a specific asset is critical.  If the risk is too high, it is important of hedge some of that financial risk to limit downside exposure.

With all this said he is also not afraid to pay for true value when it presents itself. Rob Gronkowski is a recent example.  Rob Gronkowski is paid near the high end of his position and is still under contract for a few more years but the patriots have identified him as once in a lifetime talent so are already in talks to renegotiate his contract and pay him more in order to lock in his unique talents for years to come.  When analyzing a stock you never want to over pay for it but there are the stocks that see incredible growth yet still continue to exceed expectations so while the stock may seem expensive it is still worth paying that high price because of the proven value it is able to provide.

When it comes to actual game planning the Patriots always seem to create a plan that exploits the weaknesses of an opponent or takes advantages of opportunities that they are able to exploit.  They take the skills that each of their players have and simply ask them to “do your job” when called upon knowing that cumulatively if each individual player does their own job then the team becomes successful. When they identify that an opponent has a poor run defense, they put more emphasis on the run game.  When they are weaker defending the pass the patriots will throw more. An investment portfolio is made up of a number of different pieces as well. These pieces see different levels of success during different market conditions and are utilized for different reasons. The most successful investors have a rare ability to read what is going on in the market and create a game plan of how to best take advantage of it. In times when more income is needed they will shift assets to higher dividend stocks.  When there are opportunities internationally they will make their portfolio more global.  They identify opportunities and shift their strategy as needed to take advantage of these opportunities.

While managing a football team and designing investment portfolios would seem to require different skill sets.  The Patriots disciplined approach, ability to remove emotion and keen understanding of risk and reward has many correlations with being a successful investor.  The everyday investor can learn a lot about their own portfolio construction and how to make better financial decisions by simply applying some of these skills.