The Emperor's New Clothes?

Winning rugby world cups and investing have a lot in common. Teams (investors) need to have a clear strategy that will play to their strengths to achieve the end goal. But perhaps more importantly, this strategy must be somewhat flexible to adapt to conditions. The team (or investor) that can stick to their clear strategy but with the ability to modify when required, put the odds of winning in their favour.

When the Irish rugby team departed Dublin airport three weeks ago, it did so as the number 1 team in the world rankings. Three games into the group stages and things look (and feel) very different following an average performance against a dreadful Scotland team, a well-deserved loss against a dominant and well drilled Japanese side, and lacklustre win against Russia (certainly no global Superpower). 

The Irish rugby team has beaten New Zealand, Australia, England, France and Wales all in the last 24 months. So, how has a team that has been producing consistent results not yet produced a performance at the World Cup in Japan?

Joe Schmidt is well renowned as a “process driven coach”. Each member of the team has a role to perform and must perform that role exactly as part of “the game plan”.

Even to the casual armchair rugby analyst (yes - you all know who you are!), it is all too easy to pre-empt what is likely to happen on Saturday and more importantly in the quarter finals. We will take the ball into contact and then go to ground (no off loads allowed!). The runners off the rucks will wear fluorescent vests and take the ball back into contact (and to the ground) close to the previous ruck. Murray will box kick (hopefully accurately) and our wingers will compete in the air. As for our back moves, well its Johnny looping to Johnny, or perhaps a cross field kick from Johnny (to be caught by a non-Johnny).

Often in sport, players are told to focus on the process and not the results (or outturn). This strategy would appear to be a key component in some of the most successful teams. However, the best teams are those able to adapt the process (not their strategy) on the field of play as conditions dictate. 

The book “The Jersey - The secret behind the world’s most successful team” examined what factors contributed to the success of the All Blacks over the decades. There is a very revealing paragraph in the book by Ian Foster, the All Blacks assistant coach.

“Ireland are very good at executing their game. They have a set game plan and that’s how they execute it. The challenge is, what happens if their game plan is not actually working? Which is why you need more than one game plan to win the match. Pressure can close you down, dim your mind. Other emotions come in and you don’t think clearly.” 

Contrast this with comments in the same book by Alan Jones talking about the All Blacks. “The All Blacks recognize the balance between forwards and backs. They drive it up the middle, or just off the fringes. But intrinsically, they know when to unload it, to go wide. Importantly, they possess fast, precise half backs able to play both types of game, because they can read a match”. 

Let’s hope the Irish team start to play a less rigid game plan as we enter the business stages of the World Cup. We have the quality players with strong ball handling skills that should enable us to play “heads up” rugby. We also have the leaders on the pitch (Best, Sexton, O’Mahony and more recently Ryan) that have the experiences to draw upon when conditions dictate.  The players need to marginally adjust their system and then have the confidence in each other as a team to back it up.

When selecting a multi asset fund, advisors should examine carefully the investment process and be confident that the investment manager will stick to that process. However, it is also important to recognise and understand the way that this process can be adapted to take advantage of market conditions (because market conditions are continually changing). 

Perhaps a manager that looks to take advantage of buying insurance when the cost (or volatility) is low (this contrasts with many other funds in the market place).  Or a manager that looks to add a new type of asset, such as gold, to help smooth the fund returns in more volatile markets. But perhaps most importantly, a fund manager that has a clear and “transparent” investment process so that when things do become more tricky, that investors can understand clearly what the strategy entails. 

To paraphrase Alan Jones, a good fund manager can “read a match”. If you are looking for one of those fund managers, then drop me an e mail – there is one that I strongly recommend!!