Why winning in investing takes more than hype

In 2017, Las Vegas welcomed its first professional sports team, the NHL’s Golden Knights. This team, dubbed the “Golden Misfits,” was made up of players other teams didn’t want. No one expected much from them. Yet, they reached the Stanley Cup finals in their first season and won the cup in 2023. Their success wasn’t about star power, but about teamwork and strategy. Each player’s skill complemented the others, making the team stronger together.

Cathal Kelly’s article on the Utah Hockey Club’s (the former Arizona Coyotes) acquisition of Mikhail Sergachev suggests that long-term success in sports requires more than signing high-profile players. As Mr. Kelly writes, Mr. Sergachev isn’t a flashy name; he doesn’t win awards or appear on video-game covers. But he was a key part of the Tampa Bay Lightning’s playoff success in recent years. This type of thinking is also seen in the Florida Panthers’ recent success, as Mr. Kelly observes. The Panthers weren’t built to win individual awards but to win championships, focusing on chemistry and quality across the roster.

Greece’s national soccer team won the 2004 European Championship by beating more star-powered teams. They had a disciplined, cohesive unit where each player’s strengths were maximized. This teamwork and strategy led them to an unexpected but well-deserved victory. The wins of the Golden Knights and Greece’s 2004 national soccer team are prime examples of the strategic use of a psychological concept known as choice bracketing. Research on choice bracketing shows that grouping decisions together into sets can lead to better outcomes. This “bigger-picture” approach helps maintain balance and alignment with long-term goals with less likelihood of getting sidetracked, much like planning meals for a week ensures dietary balance and budget efficiency.

These moves from the ice rinks and soccer fields teach investors a valuable lesson: success comes from strategic planning and looking for synergies, not from chasing stars. A balanced investment portfolio needs different parts that work well together. Investing in the latest hot stock might seem exciting, but it can make your portfolio risky. A diversified portfolio that looks at long-term goals is more likely to succeed.

Consider these three essential lessons for greater investment success. First, develop a comprehensive plan by starting with broad goals and working backward. Identify the necessary steps to achieve them and tailor your investment choices to fit your overall financial strategy, ensuring each decision aligns with your long-term objectives. Second, focus on holistic decision-making by looking beyond trending investments. Scenario analysis can help you understand how different choices impact your long-term financial health, allowing you to make informed decisions, much like a coach assessing the entire team. Third, ensure synergy within your portfolio. Just as all players work well together in a good hockey team, in a successful portfolio different parts complement each other. Avoid over-concentration in one area and ensure your investments collectively work toward your financial goals.

Moreover, investors should steer clear of chasing quick wins and beware of recency bias. This common trap makes us focus too much on recent events, causing us to follow trends or panic when things dip, instead of seeing the bigger picture. By running scenario analyses and basing decisions on long-term data, we can avoid these pitfalls and build a more resilient investment strategy.

Chasing flashy investments might make you popular at summer barbecues (at least while these investments are going up), but this approach rarely leads to long-term financial success. The real winners in investing avoid the hype and focus on strategic planning and synergy. Like a championship-winning sports team, a well-constructed investment portfolio is built on thoughtful decisions, careful planning and a clear understanding of the end goal. As Aristotle reportedly put it almost 2,400 years ago, investors would do well to remember: “the whole is greater than the sum of its parts.”