“Simplicity is the ultimate sophistication.” – Leonardo da Vinci, 15th century
I love sports. And like most of you, I have my favorite teams. But more than anything, I love championships—when I can see how the best athletes endure the pressure of the world’s biggest stages.
These athletes go through years of training, repetition, and education to reach their pinnacles of success. The end result is often mastery of surprisingly simple movements. You could call it simplicity in motion. That’s why I love the da Vinci quote I used to start this article. This is also true when mastering technical skills (like dentistry) and subject matter expertise (like finance).
Many of the world’s greatest athletes follow this “simple is better” advice and break down their training routines into elementary parts. For this article, I want to showcase the fundamentals adopted by some of the world’s greatest athletes—and then explain how those same principles can be used to achieve better investment performance.
#1: Eliminate Unnecessary Motion
Bruce Lee. What a legend. Just saying his name reminds me of the first time I watched one of his movies! Part martial arts icon, part movie star, and part philosopher.
After being trained in Kung Foo, Lee created a martial arts style he called Jeet Kune Do: the way of intercepting the fist. Here’s how he described it. “The art of Jeet Kune Do is simply to simplify. Simplicity is the shortest distance between two points. It follows a straight line to the objective.” Taking this direct approach made Lee’s fighting movements remarkably efficient.
We see this idea of eliminating wasted motion in action whenever we watch athletes like Usain Bolt, Adam Scott, and Serena Williams. They all have what seems like effortless agility. And they also have a secret. They’re masters of an approach that focuses on using their big muscles and their core for power, while using their limbs for stability and control. Everything they do is powerful, yet economical and graceful.
Remove What’s Unessential from Your Investments
People often get caught up in the idea that more investments make for a better portfolio. The more motion, the more action, the better the result. But this approach over-complicates your portfolio. Instead of an efficient direct approach, it becomes a cluster of counterproductive movement.
The right balance of movement in a portfolio uses a financial concept called correlation. Properly constructed portfolios have components, or big muscles, that offer predictable, expected returns, but move in different directions from one another. This means that when one is down, the other area has a high probability of being up. Mixing components that behave differently from one another, but also have high expected, long-term returns, is the simple science for what investment gurus call an “efficient” portfolio. It’s a more direct approach to earning returns in your account.
For example, one big “muscle” is large U.S. companies. But if five funds in your portfolio all invest in the same companies, it over-complicates your portfolio. It causes a redundancy that can drag down your effective returns, add unnecessary costs, and increase capital gains taxes. But combining the big muscle of large U.S. companies with another big muscle of large European companies, creates a return pattern that is less correlated, which will improve your long-term portfolio efficiency.
Advice: When investing, focus on diversification and eliminating overlap in your portfolio. Keep it simple. More activity often gets in the way of better results.
#2: Get Feedback from a Limited Number of People
Ryan Flaherty. Haven’t heard of him? Well, Russell Wilson, Marcus Mariota, Jameis Winston, and hundreds of other professional athletes have. And they call him the “Savant of Speed.”
Flaherty, Senior Director of Performance at Nike, uses a proprietary formula based on an athlete’s body weight and ability to do certain deadlifts. That formula results in a single metric which is the foundation for Flaherty’s training. Marathoners, football players, sprinters, and other athletes will testify it made them faster.
Too Much Noise Leads to Confusion
Of course these athletes have other coaches, but Ryan Flaherty provides clarity when it comes to speed. You aren’t going to hire two CPAs, or two tax attorneys, or two marketing managers at your practice. Too much feedback is confusing.
I don’t know why—but I know it’s true—many dentists seek investment advice from a lot of non-specialized advisors. But giving investment advice to a dentist is very different from giving investment advice to a tech entrepreneur, or even another doctor. Why? Because making smart investments has a lot to do with understanding the timing of where you’re at in your career and practice development.
Does your investment advisor know enough about your career to recommend you take some investments and plow them back into your practice? Or maybe the opposite—does your investment advisor know your practice well enough to tell you when you’re carrying too much cash, and it’s time to invest more of it in a more liquid market alternative? Does your advisor know the approximate value of your practice, and do they take that into account when measuring your investment timeframe? Do they know how your taxes can fluctuate depending on where you are in a depreciation cycle? They should, or you won’t get the right advice.
You need one advisor per specialty for your business. You don’t want three coaches all telling you how to invest. The less cognitive noise you receive, the more clearly you’ll be able to see what’s best for your practice, and for you.
Advice: Eliminate confusion by identifying and collaborating with excellent advisors. Pick one person, and one specialist per area of expertise. This is particularly important for investment advice.
#3: Deliberate practice
Elena Delle Donne. She’s the all-time WNBA free throw percentage leader and the current guard for the Washington Mystics—and she’s made an astounding 93.8 percent of her career free throws. During her MVP season in 2014/15, Delle Donne hit 207 of 218.
Technique builds muscle memory, and Delle Donne has repeated the same seven step process thousands and thousands of times in practice for the last decade.
Steve Nash, the NBA’s career free throw percentage leader (90.43), knows about a routine. “I was in the 10th grade and I had a coach that said you should do the same thing every time you shoot the ball. When you stick to a routine, you take away all the unknown variables.”
Create the Steps for Your Own Success
Repeating the same steps to become a master free-throw shooter is not complicated. And investing shouldn’t be either. You just need a more concrete investment plan, something you can review and repeat each year until you’ve dialed it in.
First, you need to have a knowledge of where you’re headed. Here’s a pro-tip. A good goal for most dentists would be to have your total wealth be 30 times your annual personal spending by the time you’re ready to hang up the drill.
Second, save at least 20% of your gross income per year into your retirement accounts.
Third, make sure you build up a mix of after-tax savings, and pre-tax accounts. Don’t put everything into one basket.
Fourth, understand the possible high, low, and average return of each of your accounts. That way you won’t be surprised by anything along the way. Your advisor can help you with that data.
Fifth, sit down once a year and measure how you did—what was your free throw percentage on these four goals?
Advice: Build an investment plan that you can stick with. Over and over again.
Great athletes have a clear sense of purpose and train accordingly. Of course there are other factors at play: Michael Phelps owes a lot to his long torso and long arms. But regardless, those who eliminate wasted motion, choose their coaches carefully, and commit to a routine are most likely to win a ring, hold a trophy, or stand on a podium.
But even if you’re more of an armchair quarterback or weekend warrior, you can apply the same principles to achieve peak performance with your investments and grow your net worth year over year.