When it comes to your investment portfolio, I want you to start thinking about in the same terms that you would for a professional sports team. A professional sports team is a business and the bottom line of that business is to make money, which is what your investments should be doing for you. That might sound weird, but it is really simple.
Professional sports teams go through a draft process to pick new players. In that process each team gets the opportunity to pick the athletes that they feel will benefit their team the most. Professional sports teams have experts, coaches, and general managers that spend their time studying the potential players to help them determine which of the draft picks could be the best fit for what their team is lacking.
A professional sports team might be able to pick the best quarterback in the draft process, but if they already have a star quarterback this will be a waste of a draft pick. You have to know where the holes are on your current team roster in order to know which new potential players are going to do the most good for your team. At the end of the day, it is all about the team.
Some sports teams might even look to trade their high priced players that are close to retirement in order to get more draft picks. Then they can stockpile those players until they are ready in the next season. The job of the coach and general manager is to see what the team needs, who is going to be the most benefit for the team, and which draft picks will help the team to be more well rounded.
Of course, there is always an exception to these rules. A professional football team might be in need of a strong running back, but if they have the opportunity to pick up a star defensive player with the potential to be the next Troy Polamalu in the draft, they are likely to go with a player that has a high potential.
So, what is the point of all of this?
Well, it is simple really. You should be looking at your financial portfolio the same way that a general manager or coach is looking at their team.
You might think that you need to buy into tech or reach your portfolio into oil stocks to give you a little diversification, but doing something just for the sake of diversification is the wrong idea. Look at your portfolio as if it is your financial team. Where are the holes in your portfolio that could use some new blood or a fresh player? Where in your portfolio are your weak players? Where should you be looking to start making some trades? What is lacking on your portfolio team?
And just like those coaches and general managers you need to take your time and do your research. If a general manger walked into a draft selection and just picked the biggest guy on the line, without knowing anything about him, this could end up being one of the biggest mistakes for the overall team. Instead they have to research, watch tapes, go out and see college games, and test out the potential players that they are considering for selection.
The same is true for your portfolio. You can’t just pick a stock, a mutual fund, or any investment for some arbitrary reason. You need to know about the investment and you need to understand how each investment complements the entire portfolio. You need to be smart about where you put your money and you need to look at the overall needs of your team. All your investment players should be contributing to the overall benefit of your investment team. If they’re not, then it’s time for you to start your own draft selection and see where you might need to make some cuts and some trades.
With cuts and trade this gives you space for new blood on your financial team. Watch your videos, keep tabs on your potential players, and go to the games that will give you the most information on any player that you are considering bringing onto your team. Only the player that can contribute to the whole should even be taken into consideration. Sometimes a player will have a bad day, the rest of the team should pick up the slack.
I encourage you to look at your investment portfolio the same way that you would look at the draft of a professional sports team. By using this fresh perspective you might see things in a new light and this could help you to find the weak spots in your investments. Remember that your investments should be working as a team to bring back the most money possible. It is a team effort and you are the coach making all of the calls.