Football season is here again.
Whether it is the English Premier League (EPL), the Spanish La Liga, or Italy’s Serie A, fans are out in droves, eager to support their favourite football club.
For me, it’s more about the strategies and tactics which clubs employ to gain a competitive edge.
As an avid investor, I can’t help but notice the similarities between football and investing.
You see, a football game is not just played on the field.
The competition starts in the boardroom before the ball is even kicked.
Finding the right players for your strategy
“If you have no eggs, you have no omelette. And it depends upon the quality of the eggs.”
— Roma coach Jose Mourinho “the Special One”
On the football field, there are goalkeepers, defenders, midfielders, and strikers.
Each position requires different qualities to excel within the team’s playing style.
Along the same lines, signing the right team players to fit the coach’s strategy is crucial.
When it comes to investing, you are the coach of your portfolio.
You should start with a clear idea of what you want to achieve, whether it is income or capital growth (that’s when your stock goes up more than what you paid).
Once you have your strategy in place, only then do you go out to find the right stocks to fit your portfolio.
Said another way, you don’t want to end up with a wrong selection of stocks which do nothing to help you achieve your financial goals.
You win when you achieve YOUR financial goals, not other people’s goals.
Having the right expectations for each stock
“… the player has to understand he is part of a team with 10 other players. If everyone wants to be a jazz musician, it will be chaos. They will not be a team, and nothing will be possible.”
— Manchester City coach Josep “Pep” Guardiola
Placing a highly-rated player in the wrong position is just a huge waste of talent.
Likewise, each stock in your portfolio plays a different role.
For instance, hoping to get a 20% revenue growth every year from Singapore Exchange (SGX: S68) or SGX is like hoping your star defender will become a top goalscorer overnight.
To be sure, SGX has many qualities which make it a defensive dividend payer.
But dreaming of massive capital gains from a business which is not built to do so will only leave you with tears and disappointment.
Instead, SGX is the ideal candidate to form the foundation of your portfolio, offering stability in the form of regular, reliable dividend payments.
Just don’t hope for something the business can’t produce.
Finding the right balance
“The key to victory is having the right balance between attack and defence”
— Real Madrid coach “Don Carlo” Ancelotti
Winning football titles is not just about signing the best strikers in the world. A team of 11 strikers, however great, will not win you games consistently.
Striking the right balance is key.
For our Smart Dividend Portfolio, we place emphasis on having a foundation of income stocks, followed by a layer of growth stocks, and if you like, a sprinkling of speculative stocks or businesses yet to prove themselves.
All these stocks pay a dividend, mind you — it is a dividend portfolio after all.
The proportion between the three layers is key.
You should never have too much invested in speculative stocks compared to growth stocks and income stocks. Similarly, you want the amount invested in income stocks to outweigh your growth stocks.
That way, your portfolio can achieve a personal blend between stability and growth to suit your taste.
Built for the long term
Above all, your portfolio should be built for endurance.
In football parlance, anything can happen in a single football match. But over a full 38-game season, the team with the most consistent results will win the league.
Endurance comes in many layers.
Firstly, the stocks you choose should, ideally, never be sold.
This mindset forces you to consider your options carefully before you let any stock enter your portfolio.
Next, the portfolio, by virtue of its design, should afford the right stable of steady business performers alongside faster-growing companies.
The idea is to mix income stocks such as SGX for reliability with stocks such as Sheng Siong (SGX: OV8) for higher growth. Finding the right combination can produce a long-lasting portfolio of stocks producing dividends for the long term.
Finally, maintaining the right balance is key as you reinvest the dividends you receive.
Where you add depends on the stock opportunities available, how much you have in each stock and the need to balance your portfolio.
Get Smart: Cheer for your stocks!
When it comes to investing, we should support the business like a sports fan, observe the management like a business owner, and tally up the dividends paid like a patient banker.
A true sports fan does not give up on his team just because it loses two games in a row.
Similarly, as investors, we should not be too quick to throw in the towel when faced with tougher operating conditions. There will be seasons where your stocks do well, and seasons where they don’t.
What is needed is patience, and you will be amply rewarded as you continue your investment journey.
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Disclosure: Chin Hui Leong owns all the shares mentioned.
