« Podcast for 10/2/07: Interview with Dr. Burton Malkiel | Main | Podcast for 10/9/07: Interview with Jesse Anderson »

October 03, 2007

The Value of Systematic Investing

My doctor told me recently I had to add strength training to my workout regimen. So in addition to the miles I put in each morning with my dog Dritte, now I am spending an additional hour in the weight room. My favorite channel is the NFL Network. I turn it on to fill up the silence while I work out.

 

So there I am doing my bent-knee dead lifts when a discussion amongst the analysts made my ears prick up. Were the string of great Denver Broncos running backs over the years so successful because they were great running backs? Or was it because they played in coach Mike Shanahan's "system" that made even average running backs Pro Bowl candidates?

 

How can a system make an average running back great? And what does that have to do with investing? Stick with me here for a minute and I'll tell you.

 

One analyst said it was because Shanahan's system was very user friendly. It made the complex simple by eliminating all the extraneous variables. This allowed the player to concentrate on just a couple of key things that have the biggest impact on success.

 

Another analyst said the system reduced the number of times that a player had to interpret what was happening on the field. The player knew which hole to hit, or which player to block before the ball was snapped. The less interpretation, the less likely the player was to interpret incorrectly or blow an assignment. He always knew exactly what to do and when because the system was explicit.

 

But is that enough to propel a running back with average talent up amongst the league's leading rushers?

 

Opponents have tendencies that can be quantified. In a third and long situation, a defense will blitz a known percentage of the time. A system determines that percentage and then seeks to respond with the play that is most likely to succeed in that particular scenario.

 

Having a system doesn't mean the quarterback is going to rip off a pass for a first down time every time. It does mean, if executed properly, they'll get the first down more often than the team who makes the decision on the fly. The system which is based on probabilities puts the odds in your favor.

 

How might this apply to you and the great game of money?

 

Any form of systematic investing, whether it be dollar cost averaging or the Snider Investment Method™, does the same thing. The system makes the complex world of investing simple by stripping away extraneous variables, and telling you exactly what to do and when. This makes the probabilities work for you instead of against you.

 

Perhaps most important, a system removes emotional decisions that are likely to be wrong. Have you ever seen a quarterback try to squeeze a ball into triple coverage and get intercepted instead of heaving it out of the back of the end zone when he has no play? (Can you say Rex Grossman?)That is an emotional decision.

 

Occasionally a play like that will work out, in spite of the bad decision. But a quarterback who does that over and over again can't win over time. And if you can't win, you won't play in the NFL for very long.

 

I believe success, regardless of the endeavor, comes from simply doing the right thing over and over again every day. I believe that without systems, we are likely to wander off track. But I also believe, armed with a good system, every investor is capable of being an All-Star.

 

 

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

 

Posted by Kim Snider on October 03, 2007 | Permalink