Be like Tiger. Never take a risk you don’t need to take.

One of my goals with my new LinkedIn profile is to start sharing stories I have been a part of and lessons I have learnt in the investment management world. I certainly don’t have all the answers and have lots to learn. I hope that my education (even when I am in my 80s) will never be finished. But my aim with these articles is to provide valuable content for whoever is willing to read. One of my biggest frustrations with the education system is that personal finance/investment management is not taught at school. It’s no wonder we make many poor financial decisions- me included. Most people learn personal finance from their parents, who learnt from their parents. But who is to say our parents got it right? Maybe they did, maybe they didn’t…

The first story I would like to share is about a person I know who had a share portfolio that only consisted of R5 million worth of Steinhoff shares in mid-2017.

This person was 72 years old, still working, and with no other investable assets I was aware of.

I encouraged this person to consider diversifying the portfolio. Not only within the sphere of shares but consider a diversified asset allocation approach. It struck me that this portfolio did not need to grow to R10 million, the focus should be to preserve the R5 million so that they could possibly stop working. This conversation happened in August 2017. However, this person decided to hold onto the Steinhoff shares. The Steinhoff disaster occurred early December 2017 & the R5 million portfolio became R800 000. Just before Christmas 2017 this person decided to sell the Steinhoff shares & invest all the proceeds into Aspen.

Aspen shares have been under severe pressure for a few years now- and had a disastrous 2018/early 2019. This person decided to sell out their Aspen position late March 2019 and move the money into cash. The value at the end was R200 000. A portfolio that started as R5 million had become R 200 000.

This is devastating.

The huge lesson in this scenario I believe is as follows:

Never take a risk you don’t need to take. 

Tiger Woods on the 18th hole on the final day of the Master’s this last weekend played the perfect game of risk management.

He was two shots ahead, struggled a bit with his approach to the green as there was a tree in the way, and ended up having a 30m odd pitch onto the green. He would need to hit the green and two putt in order to win the Masters.

Tiger had two options. He could either hit the ball to the right of the flag, safely towards the middle of the green, and two putt the ball into the hole. This would mean Tiger would bogey the last hole, but he would still win the Masters by one shot. Alternatively, he could get aggressive and aim directly for the pin and tap the ball in for a par and win by two shots. But if he misjudged this shot, he may have rolled the ball over the edge of the green and down the slope. His two-shot lead may have completely disappeared and a playoff with Brooks Koepa, Xander Schauffele & Dustin Johnson would become a reality.

For those who didn’t watch, Tiger picked the first option, as the second option involved unnecessary risks which he didn’t need to take. He hit it safely to the right of the flag, two putted it in and won the Masters.

If it was the first round of the Masters and Tiger had the same shot, he may have played it a lot more aggressively and gone for the flag. If he got it wrong, he would have very little to lose. But on the last hole of the fourth round with a two-shot lead winning the Masters, Tiger had it all to lose, and he played the sensible shot.

If you have managed to accumulate substantial assets-whether from selling your business, saving your whole life, or receiving share options from a listed company, you really are winning the financial “Masters” and don’t need to take excessive risks. Focus on preserving your money and diversifying across sectors, across asset classes, across geographies and across currencies.

Never take a risk you don’t need to take.

Be like Tiger.