Better Investing Through Golf

 | Jun 13, 2013 | 4:00 PM EDT  | Comments
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Today marks the start of 113th playing of the United States Golf Association's U.S Open golf tournament. The goal of the U.S. Open is simple: to identify the best golfer in the world as the tournament is set up to be the hardest test in golf.

The fairways are narrower, the rough is deeper and the greens are very slippery. In short, the U.S. Open neutralizes any one particular facet of the game and is designed to test every part of a players skills.

Barring no weather delay, we will have a U.S. Open champion by early Sunday evening. The winner will have excelled the field not by hitting the longest ball but by doing a lot of little things right. Those attributes that lead to a U.S. Open champion are attributes that you can apply to increase the odds of a successful investment outcome. I list three examples below.

A shorter shot in the fairway is superior to a drive that lands in the rough -- Any golfer who hopes to be there on Sunday will understand this strategy and apply it. A 180-yard fairway shot to the green will likely have a better result than a 150-yard shot from the rough.

As an investor, you are also far better off investing in a security with higher probability of making a smaller gain than buying one with a lower probability of bigger gain. In a rising market this approach seems foolish, but when markets are rising it doesn't matter what you do. It's only when markets aren't going up in a straight line that the value of discipline is realized.

Those who bet on Apple (AAPL) at $700 in hopes of selling out at $1,200 a share are in much worse shape today than some who picked up Procter & Gamble (PG) when it was trading for $69 and paying a dividend 3.5%.

If you find yourself in the hazard, play your next shot to minimize loss -- At the U.S. Open, a player who lands in the rough is likely to be penalized. The player who wants to win the tournament will be the one who can accept making a bogey as opposed to trying for par at the expense of making a double bogey, or worse.

The intelligent investor will also understand that the path to long-term gains is achieved by avoiding significant losses. No investor will succeed with every investor. But you don't need to produce superior long-term results. You just have to avoid significant loss of capital. If you have erred in your analysis of a company, cut your losses immediately instead of risking further loss. Understand, however, that sometimes a fantastic investment will decline in value after your purchase. If your analysis remains accurate, in these instances you should treat investing like buying groceries -- buy more on sale.

The winner of U.S. Open will be the player who has made the fewest mistakes, not the greatest shots -- When it's all over, the U.S. Open Champ will likely be the golfer who leads the field in statistics like number of fairways hit, greens in regulation and putts per round, not statistics like driving distance and closest to the pin.

Minimizing mistakes is the essence of successful investing. Consider the investor who pulls in a 75% to 100% gain from one investment but risks 50% to 65% losses elsewhere. That investor will more than likely fall behind one who is picking up 15% to 30% returns, but rarely loses more than 5%. Loss avoidance is the surest path to the winners circle over the long-run

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