Did You See that Football Game? Monday, February 6, 2017 If you watched the Super Bowl last night you saw a truly remarkable event. It was almost like watching two separate games. The first game lasted through midway of the third quarter; the second was the remainder of the game. You’ve heard about all of the records that resulted from this game, but the most remarkable was that it was the largest come-back in the history of the Super Bowl. What made it even more significant was that the magnitude of the rebound exceeded the previous record by one-and-a-half times, a 25-point deficit, compared to the previous record of 10. Now you’re gonna say, “That’s great, Jim, but what does this have to do with investing?” Well, perhaps not very much, but let's think about it. From the Patriots, “Never give up”? From the Falcons, “Never take your success for granted”? For the pragmatist (or pessimist), “You can never win against an irresistible force like the Patriots and/or Tom Brady”? (Please don’t accept that last one; even the Patriots lost two games this year, and even Tom Brady has his nemesis’s; he doesn’t seem to fare too well against Eli Manning. Actually there may be a very valuable lesson for the investor to be gleaned from this exciting sporting event. I alluded to the two separate games last night, and in retrospect it is very easy to identify the demarcation point between the two. In Atlanta’s possession immediately following New England’s second touchdown, you didn’t have to be a sports aficionado or football strategy expert to see the change in Atlanta’s game plan. Up until that point, they had been playing a very aggressive game. They attacked at every opportunity, with an unpredictable mix of passing and running plays. But suddenly, the tempo of the game changed. Suddenly, clearly, Atlanta’s goal was not to continue to take the risk of putting the ball in the air. Suddenly they looked like Ohio State under Woody Hayes. Every play, the goal seemed to be “three yards and a cloud of dust”. Suddenly they were aware of the risk of the pass play: “Every time you put the ball in the air, three things can happen and two of them are bad!” And they thought that the clock was on their side. I was reminded of the Dean Smith four-corners offense used by the University of North Carolina in the 1960’s through ‘80’s. I seem to remember a NCAA final-four game in which UNC had taken a substantial lead into the middle of the second half and then went to the four-corners strategy, the intent of which was to slow down the game and run out the clock. What happened? Yeah, they lost the game, which everyone except the other team thought was won. I can’t seem to identify the specific game in question, but any sports fan can probably recollect situations in which a significant shift in momentum in the middle of a game resulted in the loss of a game which had already been considered won. So, once again, where’s the investing application? I would suggest that in virtually any human endeavor, initiative will trump complacency. There is a familiar ancient Latin proverb, “fortune favors the bold”. An attempt at a catchy reciprocal would be something like “playing it safe is risky”. The Army has an aphorism, “Do something even if it’s wrong”, the idea being doing something wrong has the advantage of confusing the opposition who doesn’t expect it. There is an assumption that the defense has the advantage of an entrenched and probably a well-prepared position. It is the offense that has to put the ball in the air. But the offense also knows where the defense is, and what the defense is up to. An aggressive offense has the advantage of the potential for surprise; where they are coming from, and what the attack strategy is. The offense can concentrate their efforts at one specific point; the defense has to defend everywhere, even at the least likely point of vulnerability. (Remember reading about the Ardennes Forest in WWII?) As in sports, momentum is a nebulous and fragile aspect of any endeavor, and often when lost, very difficult to regain. Last night, early in the game Atlanta played a fast paced, aggressive offense and defense. The breaks went their way, they had the Patriots on their heels, and they were to all appearances running away with the game. One could say they were largely making their own breaks. But then, it seems they decided the game was won and they changed their strategy. The momentum shifted, and the result was predictable. In my estimation, Tom Brady played as well in the first half as he did in the second, but the statistics would suggest otherwise. Why? Suddenly the breaks started to go his way. Was it luck? Perhaps, but fortune favors the bold. New England was bold; Atlanta not so much. (Dan Quinn said his team ran out of gas, but momentum has a way of enhancing stamina.) New England made their own luck, and the Falcons had none. In my experience, and it’s getting pretty extensive at my advanced age, I have observed that most investors recognize that, aside from getting lucky, the acceptance of (reasonable) risk is essential to profitable investing. (And often, in fact, getting lucky has exactly the opposite long-term effect; know any lottery winners?) It is almost as universally accepted, however, that once you achieve what you think to be an acceptable level of success (or advanced age?), you should change your strategy and adopt a focus on capital preservation as opposed to growth. I would suggest there are a number of flaws to this approach. First, the strategy comes out of an ancient assumption of “facts” which are no longer factual having to do with human longevity and investment performance. But perhaps, just as importantly, “preserving a lead” or “running out the clock” are often much more risky undertakings than continuing the strategy that got you to that big lead that you are trying to protect. Our prescribed approach is to press the attack; do something even if it may turn out to be wrong, because even in failure you learn something, and often, what is thought in conventional wisdom to be wrong turns out to be exactly the right thing to do. Either way, without initiative, one rarely achieves any meaningful success. Happy Spring! It’s a beautiful day in North Carolina! Jim DentonJames C. Denton, CFP® Managing Principal The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. You should discuss any choices or decisions with your financial advisor before implementing any changes to your investments.