This is the time of year when many of us turn our attention to one of America’s most popular forms of entertainment; football. The start of the high school, college and NFL season is upon us. As such, I recently caught myself reminiscing about my high school football team. As a cornerback on our team, I spent a lot of time listening to our defensive coordinator espouse our mantra: Bend, Don’t Break! We heard that phrase so often in practice it still rings through my head twenty years later.
In football terms, this meant that it was ok to give up some yards on plays, but don’t let the other team get a big play against you. You see, the chances are good in amateur football that the other team will be unable to drive 80 yards without first turning over the ball in some manner; by either fumbling, throwing an interception, or turning it over on downs. In other words, if we only gave up short plays they would have to successfully run 10-15 consecutive plays to score and that is highly unlikely. As a cornerback, and the last line of defense, it meant one of my jobs was to never let anyone get behind me for the potential big play.
Our investment portfolios are built similarly to my high school defense. They are highly diversified (well spread out), using highly specialized players (style specific funds), and very well disciplined (rebalanced, even when it seems scary). Our portfolios have surely been put to a test over the last month as the stock market has been very volatile and trended downward. We have bent slightly, giving up some of the previous years gains in the short term, but we have not broken and given up a big play (i.e. bailed out or shifted course). By maintaining this discipline we will live to prosper another day and ultimately reach our goals (i.e., win the game).
Keeping a highly diversified mix of investments will help us play defense now, but still keep us positioned to go on the offensive when markets return to form. We know that stock market corrections (defined by a 10% drop) occur once a year on average. We also know that bear markets (defined by a 20% drop) occur once every 3.5 years on average. We are experiencing one or the other of those right now. The noise around it from the media, pundits and politicians will try to distract us from our game, but we won’t let them. Our job is to stay disciplined and not let anyone get behind us.
Bend, don’t break.