What Investors Can Learn from Quarterbacks

The quarterback drops back. A player goes in motion. In one case, the defense shows no change. In another a defensive player shadows the move from the motion.

Is this meaningful? What should the QB do?

Suppose the linebackers edge up? Does that make a difference?

Background

Investors, advisors and the financial blogosphere should be receptive to every reasonable idea. Instead, most seem to have a stubborn adherence to a particular “world view.” This influences ideas about causation, potential risks, and what might help investors. Most fundamentally, some believe that there is no expertise at all in choosing your investments.

It is futile to take ossified conclusions head-on. Instead, I ask readers to consider, patiently, a different situation. At first it may not seem comparable. I hope it will be entertaining. After considering it, many will see the relevance.

The Expert QB

A top quarterback, and there are not many of them, exhibits the following traits:

  • A repertoire of pre-planned actions
  • A method for recognizing risk and reward in various situations
  • A means to implement the best plan
  • Strength and speed in execution.

It sounds simple, doesn’t it? A QB that sees a corner back tracking the motion man knows he has man-to-man coverage, a possible case of single coverage on his top receiver. That is a big play opportunity. If there is no such tracking, he probably looks for a receiver settling down in a seam in the zone. If linebackers are edging up, he senses the danger from a blitz – suggesting a safety valve receiver or an audible to a screen pass or draw play.

Quarterbacks have widely varying skills in this process. Hundreds of players seek to be quarterbacks. Many have the physical skills. There are 32 NFL teams and not enough expert quarterbacks to go around. Many argue that there are only a handful. The skills are much easier to describe than to learn and execute.

Finding an Expert QB

Identifying someone with the right combination of physical and mental skills is a challenge. Many top draft picks, attractive based upon college records, are unsuccessful as pros. Some of the late choices become stars. Identifying the real experts is a process that requires both data and observation.

A good college quarterback might get away with poor footwork, fixation on the primary receiver, or other problems. A team spending a high draft pick must look beyond statistics, finding QB’s with physical talent, mental acuity, and solid fundamental techniques.

It can be summarized in two points.

  1. There are experts, QB’s universally recognized as extraordinary;
  2. Finding a true expert has a great payoff for a team, perhaps including multi-year dominance.

The expert quarterback recognizes both risk and opportunity. He demonstrates preparation and planning. He chooses a plan that reflects the defense he sees.

Investment Implications

Expert investors adjust their portfolio in line with market conditions. Like a great QB, they take what the market is giving.

If you are not “reading the defense” you are both missing out on great opportunities and blind to potential risks. Consider adding this flexibility to your investment management. Do you have a collection of plans? Signals to watch? The ability to execute when necessary? Please not that you need not “predict” anything special, but you should prepare for various alternatives.

The time to think about this is now, not amid chaotic market action.