The Unsung Hero Of Systematic Investing

In basketball, if you have the best player on the floor, you often stand a good chance of emerging victorious.

This has generally been correct in our lifetime, starting with Kareem and Magic for the Lakers, Bird for the Celtics, MJ (best of all time…just saying) for the Bulls, as well as Shaq, Kobe, and LeBron.

There have been exceptions that could be argued, from the Bad Boy Pistons to the early 2000s Pistons, or the Raptors a few years back. However, you need look no further than this year and two-time MVP Nikola Jokic to see yet another example of a team with arguably the best player being in the hunt for a title.

As the NBA Finals get ready to kick off in June, there’s an interesting parallel to what we have in the markets right now. If you have the “best” stocks in your portfolio, you’re likely having a great year and on pace to meet your goals. If not, you’re potentially back to the drawing board just like NBA general managers who missed the playoffs or were eliminated.

The S&P 7

The S&P is having a fairly good year, but that is being almost entirely driven by just a few stocks.

The S&P 7 vs. The S&P 493

Source: Twitter.com, @Growth_Value_, 5/26/2023

We think the above is an amazing graphic display of the power of leaning into the best-performing names. Just seven names in a portfolio of 500 stocks have returned 44%, with the remaining returning 1%.

Now, before you beat yourself up for not owning one or some of the best seven in your client portfolios, you should remember that even Cathie Wood sold NVIDIA in January.

The takeaway for us is this: If you are relying on your intuition or research skills and not a systematic investing process for determining which stocks to own, then you are doing yourself a disservice.

We are fond of saying, “If it isn’t repeatable, it isn’t useful,” and that, “Consistently good beats occasionally great.” Our systematic investing approach for owning funds, stocks, and bonds is based on those principles. Our trend following process isn’t perfect and can’t make guarantees, but in our experience, we think it improves the odds of owning strong stocks like The S&P 7 and minimizing exposure to some of The S&P 493.

Blueprint Investment Partners has owned many, but not all, of The S&P 7 for most of 2023.

Tesla, for example, has generated most of its 2023 return while in a deep downtrend due to taking a beating in 2022. We ignored most of the first portion of 2023’s increase and just recently started dipping our toe back in. During the stock’s decline in 2022, we were generally out of Tesla, which is an equally important point to note, in our view.

Do The Ordinary Better than Anyone Else

Chuck Noll, who coached the Pittsburgh Steelers to four Super Bowl titles once said, “Champions are champions not because they do anything extraordinary, but because they do the ordinary things better than anyone else.” We think this applies to a both a systematic investing process and a well-run financial advisory practice.

Using a systematic investing approach is not extraordinary or a silver bullet. It’s a fairly straightforward and repeatable investing process. But, in our opinion, it is the most compatible approach with how a financial advisor should run their practice because it provides good odds of being on the winning side of market moves while avoiding catastrophic declines.

If an advisor can remove catastrophe, lean into strength, and then do the ordinary things better than anyone else (e.g., maintain strong relationships, build solid financial planning, and pay attention to detail as the quarterback of a client’s financial future), it can be a championship-winning formula.