lining up your shot

When I first learned to play golf, my father told me to be aware of where the dangers were before taking a shot. He said course management is often as important as having the perfect swing. And all these years later, I’ve come to believe the same can be said about managing a portfolio and investing money.

Not having the right knowledge can paralyze you, because you are afraid to make a decision; on the contrary, having the correct knowledge will allow you to prosper.

If you do your homework, you’ll probably come to the conclusion that a slow and steady approach to investing is the key to capitalizing on your money. One mistake people make when playing golf is trying to hit the ball too hard. This is very similar to someone taking more risk than necessary when investing. He has heard the old saying: “Slow and steady wins the race.” Well, that’s as true with investments as it is with golf.

I was ecstatic that Winfred listened to my advice when we played those holes at the Dallas National Golf Club. One of the biggest mistakes people make in golf, and similarly in investing, is making drastic and risky decisions. Watching Winfred pause to consider his next move and the advice he was receiving gave me great hope that he will do the same every time a money move comes along.

When Winfred hit the shot into that sand trap, her first instinct was to overreact and try to hit a long shot. This is the same with people who lose money on an investment; they will usually attempt to overcorrect by taking an even greater risk. Most of the time, all it does is make them lose even more money.

A prospect is an important tool that you need to play properly. Technically, a prospectus is a legal statement that requires companies to meet transparency standards by disclosing certain facts and statements to ensure that investors are not misled in any way. And while reading long, tedious financial documents may not sound very exciting, it can tell you a lot about a company’s intentions.

For individual investors, the trick is to distinguish between statements that would likely appear in almost any prospectus and other statements that tell you about the various qualities of a company. The most important factor to remember is that the prospectus describes projections, not actual facts. There is no guarantee that the company will meet its sales and profit targets, so it is very important that the investor consult the prospectus and decide whether the assumptions are realistic.

Going back to our metaphor, this is similar to golf in that you need to read the terrain and decide if the shot you’re about to hit is realistic. In addition to the prospectus illustrating the company’s current position, it also provides detailed details on how it has performed in the past. It is extremely important to learn from the past, not only in investments but also in golf.

Winfred and I play regularly at the Dallas National, and over the years we have discovered what our strengths and weaknesses are on specific holes. We’ve learned from our good and bad shots in the past, and we continue to tweak and improve our games from our learning experiences. Whether in golf, investing, or just life itself, you’d be wise to do the same.