February 2010 Update
February 1, 2010
By Tim Chapman
Playing Smart Sometimes Means Playing Safe
In the 1949 Bing Crosby Invitational, Ben Hogan was standing on the tee of the famous par-3 16th hole at Cypress Point that plays about 260 yards to a green jutting out into the Pacific Ocean. I've had the distinct pleasure of playing Cypress so I know how intimidating that shot can be. I stood there, feeling a moderate breeze coming from the ocean, and decided if I hit my driver perfectly I could reach the green. I was wrong. My golf ball crashed into the rocks in front of the green, joining thousands of other golf balls that once belonged to overconfident hackers like me.
Mr. Hogan was one of the greatest ball strikers ever. But that year in The Crosby he was in contention, and instead of going for the green he laid up with a 5-iron to the fairway off to the left, hit his wedge onto the green, one-putted for a par and went on to win the tournament.
Later, when the press asked about his decision to lay-up he said, "I knew I couldn't win the tournament on that hole; I sure wasn't going to risk losing it there."
The difference between my mindset and Hogan's is that my golf shot really didn't matter and his did. I was playing for fun, he was playing for keeps.
There is a parallel between that story and Stadion's philosophy of managing money. We realize that clients are trusting us with their serious money. Money they know they'll need to live a comfortable retirement. They are playing for keeps.
There are times when it may seem like we're laying up - playing too conservatively - but we know we're faced with the same situation as Hogan. Most Americans live 20 years or more in retirement. A healthy 50-year old has about 35 years ahead. One good year in the stock market can't insure a comfortable retirement, but one bad year can effect the outcome forever.
We missed out on some returns in 2009 because there were times when the risk of being invested was just too great to "go for it." It's okay to risk the low percentage shot when it's just for fun, but when it comes to your "serious" money, we'll always err on the side of safety. That approach will give you a better chance to win over time. Hogan understood that "winning by not losing" makes perfect sense when everything is on the line. For insight into how our philosophy is reflected in our model's response to recent market conditions, see the February market commentary.
Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money. Investment return and principal value of an investment will fluctuate so that an investor's portfolio may be worth more or less than their original investment. The investment strategy presented is not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Stadion's actively managed portfolios may underperform during bull markets.