For example, the approach of the New Zealand All Blacks, a team that won back-to-back Rugby World Cups, has been hailed as a blueprint for success. But it is interesting that many of the pillars of its approach have their roots in the business world.
Similarly, the foundations of Australia’s 1993 World Cup-winning rugby team under coach Rod MacQueen, as well as the successful 2003 England World Cup squad (under Clive Woodward), were also built around lessons learned from the corporate world.
But is there a similar opportunity for sharing experiences and approaches between high-performance sporting achievement and portfolio management? I would say there is.
The right philosophyIt is critical in the sporting world to have a philosophy that covers, amongst other things, a vision of the style of play. A team’s style of play is built on an holistic assessment of its own players, perceptions of competitive advantage and the external conditions it is likely to encounter. The team must balance nimble adaptation to short-term conditions, while staying true to its philosophy.
The similarities when designing an investment philosophy are clear. In the world of investing, you must have a clear investment approach, or process, that provides a long-term guide for fund managers. Staying true to this investment approach during times of stressed and volatile markets is one of the biggest tests of nerve for any portfolio manager.
The right ‘talent’The coach of a high-performance team needs to build a squad of players. They will understand that not all players perform the same role, or share similar characteristics. A good team requires the skills of a diversified squad of talent in order to drive sustainable high performance. A squad that’s too small (e.g. because of injuries) can be left exposed; too big and it becomes hard to manage.
A portfolio manager must understand the role of each asset within a portfolio, knowing which ones will drive performance in certain conditions, and crucially, knowing how these assets will interact. What’s more, there is also an optimal portfolio size – too big or too small and overall performance tends to suffer.
The right mentalityEffective coaches are optimistic ‘futurists’. That means they have to keep looking forward and remain calm, confident and optimistic even when a situation appears bleak. They operate in highly volatile and unpredictable environments, where many variables are beyond their control and it is virtually impossible to play ‘the perfect game’. When results and performances are not hitting the mark, sports people can’t afford to take their eye off the ball while worrying about the final score.
Volatile and unpredictable environments in sport and investing demand similar character traits - resilience and self-discipline being high on the list.
The right dataOne of the most significant changes in sports coaching over the last 15 to 20 years has been the adoption of data to measure, understand and drive performance. Two key lessons have been the value of marrying data and intuition in the decision-making process, and the benefits of using data in discussions to enhance future performance. Coaches will use relevant data and key performance indicators to assess team and individual-level performance. This underscores a fact-based approach and the adoption of a growth mind set.
The growing availability of ‘big data’ and alternative data, as well as the use of data science techniques to analyse and interrogate this vast pool of information, have also affected active investment managers. Every step of the investment process has been affected – from universe screening to idea generation, from portfolio assembly to implementation. The primary lesson for investors is the need to get the right balance between data and intuition, with the aim of augmenting human collective intelligence with data and artificial intelligence.
The right conclusionA clear philosophy, strong trust in processes, resilient and disciplined players, an optimal squad mix and size, and the appropriate use of data and intuition in decision-making, are some of the key ingredients for sustainable success in a high-performance sport.
That list also feels like a good starting point for building a successful approach to portfolio management. Perhaps it is the shared challenge of navigating a highly unpredictable environment? Perhaps it’s the common goal of delivering consistent and sustainable high performance?
Whatever the specific reason, sports coaches and investment leaders would do well to look to each other for ideas as they strive to play that elusive ‘perfect game’.