Sunday, June 14, 2015

Successful Investing Is Similar To Successful Free Throw Shooting

It's NBA playoff time --- LeBron and his supporting cast vs. Stephen and his supporting cast.

LeBron is the athlete, and Stephen is the pure shooter. Both are great and virtually in a league of their own on the basketball court. Off the court, LeBron follows the advice and counsel of Warren Buffett, also in a league of his own when it comes to investing. Who Stephen listens to for investing advice, I know not.

But my guess is that he learned to shoot by watching his father Dell and by listening closely to what Dear Old Dad was telling him about shooting a basketball. Father Dell was a great NBA shooter and in a league of his own as well.

Successful investing is a lot like successful free throw shooting. To be great at either one takes time and plenty of practice and patience. The earlier one starts, the sooner one becomes good at it. Stephen Curry wasn't a born shooter. He became a 'natural' after years of practice, hard work and excellent early instruction.

And it's the same with individual investing success. The sooner one becomes good at investing, the greater investor he is likely to become over time. And here's the really good news. Becoming a great investor isn't nearly as time consuming nor as difficult as becoming a pure shooter in hoops. That makes achieving investing success the easier path for us mere humans to follow when pursuing investing 'greatness.'

What Stephen Curry's Free Throws Can Teach Investors has this practical advice for individual investors:

"The NBA loves player statistics–and I love looking at those statistics and thinking about what it may mean when it comes to your money.

Take 2014-15 NBA MVP Stephen Curry of the Golden State Warriors. The Wall Street Journal did a recent study looking at all of Curry’s 337 free throws during the course of the NBA season. When not wearing his mouthguard, Curry shot 198 for 214 from the free-throw line, which is a 92.5% shooting percentage. With his mouthguard on, Curry shot 110 for 123, which is an 89.4% shooting percentage. The real difference between these two is 3.1% (or 3.35% real growth), which is a substantial increase in free-throw accuracy.  Golden State Warriors general manager Bob Meyer said, “Maybe we should communicate that to him.”

So, what does this have to do with investing and making money?

First things first, most investors don’t take the time to actually review their strategy or their overall real performance. If you have taken a particular fork in the road with how you invest your money, isn’t it important to gather data to ascertain which part of your strategy is working well and which part is working less well? Without going through this step, you are sure to make continuously uninformed decisions, which will likely lead to lower-quality results.

Second, the difference in earning an extra 1% on your money over the course of 30 years could lead to hundreds of thousands dollars more in your pocket. So, if you knew (the mouthguard out) that a certain strategy, fund, investment, etc. was a higher quality longer-term performer, wouldn’t it be smart to do more of what has worked consistently well?

For instance, $100,000 invested at a 7% return over 30 years with no additional investments (assuming no taxes) would grow to $761,226. But with an 8% return, that $100,000 would grow to $1,006,226. That extra 1% annually would make a 250,000 difference!

What’s true about both sports and money is that small, incremental percentage gains on what you are currently doing can lead to huge results over the long term. It could thus make the difference between retiring early, retiring later or not having the possibility to retire at all."

Summing Up

My message to individual investors is a simple and straightforward one.

Start saving and investing early, don't pay for what you don't get, own stocks for the long haul, stay the course and reap the rewards after a successful adult lifetime of investing.

Earning an additional 3% annually on an initial investment of $100,000 would result in twice as much money as otherwise after 24 years and an enormous multiple of 4 times after 48 years.

1% is a lot, 3% is a whole lot and achieving this after a long period of time invested is great.

While we all can't be like Stephen Curry, by following common sense individual investing rules over time, we all can achieve great investing results for ourselves and our families.

That's my take.

Thanks. Bob.

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