No Pictures On Scorecards

The 153rd Open Championship kicks off today, at Royal Portrush Golf Club in Northern Ireland.

Even the thought that a global sporting event could have taken place in Northern Ireland would have seemed absurd only twenty years ago, but here we are. An incredibly proud day for the country, and if our boy can get the job done - well, it may just be the pinnacle of his (already incredibly storied) career.

Image credit: Shutterstock.

One of the great things about golf is that there is no “right” or “wrong” way to play the game. All that matters is the scorecard, how you get to the end result doesn’t matter a jot. If I shank the ball off a tree and it miraculously lands on the green. I can walk off with the same score as someone who has played the hole in rather more conventional fashion.

Golfers don’t get extra points for difficulty. Nor do investors.

When we invest, all that matters are the numbers. Panache, style, being clever, taking massive bets etc matter not. This isn’t figure skating. We are aiming to get from A to B with the minimum of fuss.

That being the case, if we know what we want to achieve and acknowledge that taking the Route One approach to get there offers no penalty whatsoever, then what can our investing strategy look like?

I have written before about my absolute conviction that simplicity offers our best chance of success, but what does this look like practically?

• Make as few decisions as possible;

• Keep costs low;

• Bonds, cash and equities only²; and

• Implement through a single investment fund.

  
  

Of these, the fourth point seems to raise the most eyebrows, with two primary objections. I will endeavour to rebut these below.

Aren’t we putting all our eggs into one basket?

On the surface maybe, sure. But whether this is appropriate or not depends on the size of the basket. If we are talking about a single fund holding 30 individual stocks, then I would agree with you that that would be madness.

But if our chosen fund offers a “one stop shop” for capitalism, exposure to the entirety of the global equity and bond markets in whatever proportions - then I would argue that is more than enough diversification for anyone to ever want or need.

Anyone could come up with that, what am I paying you for?

First off - no, anyone couldn’t come with this because an awful lot of people are contractually obliged to chuck complexity down your throat, because that’s where the margin lives.

Second, and this is my main point, I am deeply uninterested in recommending an investment solution which may look “sophisticated” for the sake of it. I am rather more interested in recommending an approach which is going to give clients the best chance, based on empirical evidence, of seeing a great outcome.

Morningstar’s annual “Mind The Gap” research shows that investors who choose to invest solely in “one stop shop” funds, receive total returns which are more closely inline with that fund. This might seem obvious, but it is actually quite unusual. What we see with investors who hold portfolios with lots of securities in them, is that the returns that they actually receive lag the returns of their investments due to mistimed sales and purchases - behavioural mistakes.

A doctor would not dream of letting a patient deteriorate in order to show off, and make it look like “more effort” has gone into the cure. They will administer the medicine and move on.

In the same fashion, a professional with a fiduciary duty to their client must surely look for the path of least resistance to meet their goals. To do otherwise, they can only be in the business of fee justification or ego stroking. Neither of which are optimal.

If a client can get everything they need from a single, suitable investment fund - then why would I overcomplicate their life by adding more lines of investments to the portfolio.

After all, no pictures on scorecards.

As ever, none of the above is intended to represent advice to any specific individual. If you have any questions regarding your individual situation, please consult a regulated financial adviser. Past performance is not indicative of future returns.