Andrew Craig of Plain English Finance asks whether investors could learn from the English cricket legend’s highly defensive but effective batting strategy.
Following England’s victory against India in the recent test match, I am reminded of a conversation I had with one of our board members not that long ago, when he suggested that one of the best ways to approach investment is the same way Geoff Boycott approached batting in cricket.
For those who may not follow cricket, Geoff Boycott was a very famous English batsman, active in the 1960s, 70s and 80s. His signature approach to the game was to prioritise defending his wicket at all costs and only look to strike the ball when he felt it was safe and he had the highest chance of success with the least chance of being bowled or caught out.
This meant, in practice, that he could go for very long periods of time without scoring any runs and that it would take him a long time to build an innings and a high score. Although this approach was arguably rather boring to watch, the net result over a 24-year career was that he is the equal fifth-highest accumulator of first-class centuries in history, eighth in career runs and the first English player to average over 100 in a season (in 1971 and 1979).
There are compelling arguments to suggest that a ‘Geoff Boycott’ approach to investing is a good one to take. The main reason for this has to do with something called ‘the breakeven fallacy’. This is the mathematical fact that a 100 per cent return is needed to recover a 50 per cent loss which is why legendary investor Warren Buffett says about investment: ‘Rule No.1: Never lose money. Rule No.2: Never forget rule No. 1.’
You could say that this is another version of Aesop’s fable of the tortoise versus the hare, I suppose. Over time, the investment tortoise is very likely to beat the investment hare. So what is a good approach to investment if your main aim is to avoid large losses?
We believe that the answer is relatively simple: You should look to invest in all asset-classes in all main geographical regions. At the basic level, this means that you should look to own shares, bonds, commodities and real estate in the US, Europe and Asia – not just one asset class or one region as too many people do. This sort of diversification has not far off a two-century track record of protecting the downside while simultaneously making significant above-inflation real returns, and it has never been easier to take this approach.
When you think about it, it should be reasonably obvious why this works. Between March 2007 and March 2009, the US stock market fell by more than 56 per cent. In 2008, however, oil hit an all-time high, and in 2009 gold was up nearly 20 per cent. Sometimes the US stock market is on fire. Sometimes Japan is the place to be. At other times you would be better placed owning the UK or Europe. The problem is that you are highly unlikely to ever figure out what the right answer is. The easiest thing to do on that basis is just to own everything.
Famous US investment writer Harry Browne said about this approach in the early 1980s: ‘Over broad periods of time, the winning investments add more value to the portfolio than the losing investments take away.’ Even better – you can sleep at night. It has also never been easier or cheaper to invest like this than it is today.
As such – A simple ‘Geoff Boycott’ approach to investment is to opt for a fund or a small number of funds (within your Isa or Sipp accounts) that give you exposure to all major financial markets across the world. We call this ‘owning the world’.
You should then look to make regular investments into those assets for the rest of your life until such time as you have enough in your investment accounts to live on. This day might arrive sooner than you think, given the power of compound interest and protecting losses.
If history is any guide, having this kind of global asset allocation will give you a very good chance of making significant returns on your savings. Over a lifetime, this sort of regular investing will very likely help you achieve pretty ambitious financial goals no matter what the stock market does.
Andrew Craig is founder of Plain English Finance and author of How to Own the World