The Super Bowl is once again upon us, and we can all look forward to the most unproductive Monday of the year. I am more than a little surprised that corporate America has not gone to the NFL and forced them to move the game to Saturday or they would refuse to advertise during the game. While some sports bars may not like that choice, it would be better for all concerned if the game was played on Saturday and everyone had a little time to recover from the festivities. I am not a huge NFL fan these days, but I am sure I will watch the game out of habit if nothing else.
In most sports, the team that ends up hoisting the trophy is the one that has been able to consistently execute its game plan and take advantage of their strengths while avoiding exposing their weaknesses week in and week out. Teams that have a big offensive line and powerful running backs will lose a lot of games if they are always playing from behind and have to throw the ball in an attempt to catch up. Teams that are built around the passing game will struggle if the opposing team is able to keep the pressure on the fragile quarterback and knock him out of his rhythm. Playing to your strengths and taking advantage of opportunities makes for winning teams.
Successful investing works pretty much the same way. Individual investors who can design an approach that fits their personality and continually execute it well will outperform most of their peers and many of the so-called professionals. I prefer the deep-value approach, but I am aware that there is more than one way to skin this cat. Momentum investing can work for those who have a personality suited to it. My research shows that investors who stick with REITs and buy those with high F-scores should outperform the market over time. Successful traders are as rare as finding a superstar quarterback in the sixth round of the draft, but if you have that unique skill set and mental attitude to be a good trader you would be foolish not to exploit it. A winning team's game plan must make proper use of the personnel, and a successful investing approach must fit your personality, skills and goals.
Winning the investment game also means using your advantages to earn higher returns. As individual investors, we have huge advantages over the professional investors and most of us never use them. This is akin to having Tom Brady on your bench while you start Tyrell Suggs at quarterback. You are giving way the edge that will make you a winner.
Our biggest edge over the pros is size. We can buy small companies that most big funds cannot even consider. We can put a meaningful portion of our portfolio into small community banks if we choose. We can buy small closed-end funds trading at a huge discount or a REIT with a $100 million market cap and an excellent portfolio of properties. As individual investors we can buy whatever we want regardless of size. The out-performance of smaller companies is pretty well documented, but the majority of the people I talk to every day are trying to time Action Alerts PLUS holding Apple (AAPL) or pick a bottom in Exxon Mobil (XOM) . Everyone talks about Bank of America (BAC) and Action Alerts PLUS holding Citigroup (C) when there is more potential upside and a lot less risk in small banks with an activist shareholder like Wayne Savings (WAYN) or HopFed Bancorp (HFBC) .
The other big advantage that we have is that no one is watching us. We have no institutional mandate to have a certain percentage invested in any asset at a given time. If we chose to overload our portfolios with small banks, REITs or private equity firms, we can do that without being concerned our boss will be angry with us. No one is going to call and threaten to close their account because we do not correlate well with our benchmark. No one is going to question our decision making if we decide the market looks rich and we prefer to hold cash. There will be no shareholder revolt if we do not own the hottest and most popular socks when we file a quarterly disclosure. We can execute our game plan on our time frame with no outside interference.
Pick the approach that fits your skill set and personality. Take advantage of the edge that you have over large institutional investors. You might not win the Super Bowl, but you should increase your returns and build your net worth over time.