Every year in early April the best golfers in the world converge on the grounds of Augusta National Golf Club to compete golf’s most prestigious tournament The Masters. As the saying goes “it a tradition like no other.” The course, with the exception of a few modern alterations, is genuinely the same today as it was when it was first built in the 1930’s. Tradition and prestige are what set The Masters apart from almost any other golf tournament.
While The Masters may be about tradition and keeping things the same the game of golf itself has evolved quite a bit since the 1930’s. One area the game has changed is how statistics are used to measure a golfer’s performance.
What do I mean by this? Let’s go back to when Jack Nicklaus won The Masters in 1986. What golf statistics were primarily used at that time? Well very simple stats were used in those days like percentage of fairways hit, greens in regulations, etc.
While those stats are useful over the years many wondered if there was a more advanced way of using stats in golf to more accurately show a golfer’s strengths and weaknesses. For example a 200 yard drive down the middle of the fairway does not seem the same as a 300 yard drive down the middle of the fairway. This counts equally as a fairway hit but it seems the 300 yard drive should be given more credit.
Likewise hitting a green in regulation but leaving a 50 foot putt does not seem the same as hitting a green in regulation leaving a 15 foot putt. Both count as a green in regulation but wouldn’t the shot within 15 feet leave the golfer with a much better chance of converting the putt?
In recent years the PGA Tour has developed a way to add more statistics that more accurately show the strengths and weaknesses of a player. Thru a tool called ShotLink developed around 2007 the PGA Tour has accounted for the use of more advanced stats in measuring a player’s performance.
For example the statistical measure of strokes gained off the tee takes into account both hitting fairways and distance. Without getting into too many details in the example above the golfer with the 300 yard drive would get a higher weight when measuring the drive. This drive may account for +1 off the tee whereas the 200 yard drive would be a much lower number.
The statistical measure strokes gained on approach would be handy when measuring the golfer ending up with the 50 foot putt as compared to the golfer with a 15 foot putt. Again the golfer with the 15 foot putt would likely receive a positive number whereas the golfer with the 50 foot putt something much less.
When it comes to investing many of us were taught in the 90’s and early 2000’s to do so using mutual funds. Diversification was key we were taught and adding a mix of say large, mid and small cap along with some sort of fixed income fund position seemed to be a viable strategy. Many set up their funds, added to positions over the years and never made any changes holding to the old trusted set of beliefs.
Golf stats like percentage of fairways hit and percentage of greens in regulation are still viable. As is the strategy of just using diversified mutual funds. But there could be more you could be doing with your portfolio just like there was a better more advanced way to measure golf statistics.
One area investors could look outside of traditional mutual funds are into alternative investments. Hedge funds are one example where investors can diversify out of traditional stock and mutual fund holdings and pursue returns that could be less correlated to the market.
Natural resources and real estate are other areas where investors can turn for further diversification of their portfolio. Did you know there are funds out there that allow you to invest in say water resource management? Or that there are funds that allow investors to tap into the rental real estate market without having the traditional landlord responsibilities.
Alternative investments are certainly not for everyone. But are you aware that the Harvard University endowment, the largest endowment fund in the country with assets of just over 50 billon dollars, has 50% of its holdings in alternative investments? Most people at least need to have the conversation about alternative investments with their financial advisor.
Much like golf stats have evolved from simple to more advanced maybe your portfolio should do the same. Alternatives investments are one option to help add more diversification by going into non-traditional asset classes and as such spread out more of the risk to your overall portfolio.
* Investing involves risk. Depending on the different types of investments there may be varying degrees of risk. Clients and prospective clients should be prepared to bear investment loss including loss of original principal. Diversification and asset allocation strategies do not assure profit or protect against loss.