Growing Wealth 101 – A Lesson from Rocky Balboa?
Growing Wealth 101 –A Lesson from Rocky Balboa?
The fictional boxer used a powerful strategy to become a champion. HNW investor – take heed.
Next month will mark the 41st anniversary of the release of Sylvester Stallone’s iconic movie, Rocky. A down and out boxer (Rocky Balboa) gets a miraculous title fight against the heavyweight champion of the world (Apollo Creed.) If for some strange reason you have never seen the movie – he makes the most of it.
Through the endless stream of cheesy sequels that followed, you may have forgotten that the original movie was an inspiring masterpiece – winning best picture of 1976. No matter your background or upbringing, its hard not to like the original Rocky.
Rocky lost his first title fight – a valiant but painful beating many investors from 2008 can relate to.
The picture inspired coaches, sports clichés, workout mantras and popular culture for decades and still does today.
This is probably because Rocky underscores a variety of moral lessons in both sports and life.
But many overlook one important aspect of the original Rocky.
Rocky lost the fight.
Sure, I know, the movie was about giving it your best against overwhelming odds, et, et.
But if you try to find a lesson for investors, its hard to come by in the original movie. The lesson for investors doesn’t come until Rocky II.
For in Rocky II, Rocky actually won.
For investors, glory, sacrifice and lessons learned all make good dinner conversation. But all of that means nothing if your wealth is going down the drain . At the end of the day, you actually have to WIN – no matter what the market is throwing at you.
But to do it, he had to learn an entirely new approach to boxing. He had to go in strange foreign direction that other boxers weren’t willing to go. He had to learn to think about boxing in a completely contradictory manner than he had been taught. Only after he learned this, did he win.
It’s a prudent lesson for modern investors – one they may need to learn sooner than they think. Investing is like boxing in many ways. And if you want to avoid getting knocked out, Rocky has a powerful lesson to teach.
Rocky I – The Traditional Investor
In Rocky I, the fighter had one approach to boxing. He had a left hook that could drop an ox.
Rocky’s entire approach to fighting relied on setting up his left hook. Awesome as it was, when Apollo Creed came along, it still wasn’t enough to beat him.
Traditional investors more or less take this same approach. They rely on their left hook. They take what they are told is an “optimum” asset mix of stocks, bonds and cash and then rely on one thing to build their wealth – a bull market. As long as stocks are in a bull market, they think “Hey, this does work! I can rely on my left hook to carry me through life and retirement.”
And then, they run into Apollo Creed, aka: a steep correction. Their financial advisor tells them to “ride it out” no matter what.
If you ever want to hear a traditional financial advisor stumble around, ask him what his “exit plan” is if stocks collapse.
“Ride it out” is the only plan of action most even know of. In their world, there is nothing else to do.
But we all saw what Rocky looked like after the fight. Rocky might have won glory but is that what you want to look like that after the next correction – or worse yet, a 2 or 3 year bear market?
Rocky II – The Winner
Unlike some investors, who got destroyed in 2008’s market meltdown, Rocky was lucky enough to get a second chance with Apollo Creed.
And unlike the majority of those who did survive the financial crisis, Rocky learned from his first time around.
An alternative approach wins the day: Champion investors develop alternative approaches designed to prepare for and beat stagnant or even bear markets.
He learned that to win, he needed to take an alternative approach. (Sure Burgess Merideth’s “MIcky” is the one who told him this but Rocky soon saw the wisdom in it.)
Rocky, a natural southpaw, decided the only way to beat Creed (and protect his ailing eye) was to switch to become a right handed fighter in an effort to confuse his opponent.
He had to learn a whole new way of boxing – much of it contradictory to
everything he had ever learned or been taught.
Rocky’s strategy was to wear Creed down the entire fight, let him feel as though he could beat him as a right handed fighter, and then at the last minute, switch to Southpaw and catch him off guard.
It worked, and Rocky wins the championship (of course he did – you know you saw it!)
The lesson is this.
If Rocky would have fought the second fight as a southpaw, he probably would have lost. It didn’t work the first time around and it probably wouldn’t have worked the second.
If you got knocked out in 2008 and you’re still fighting the same way, chances are you’ll get knocked out again when Apollo Creed inevitably shows up.
Micky was a smart manager and Rocky was a smart fighter for taking his advice. If he had not, he likely would have suffered a disastrous second loss to Apollo, ending his pro-career.
The advice was to master a second approach to his game.
It was not easy. If you’ve ever swung a bat at a baseball or softball, think of how difficult it would be to learn to swing from the other side of your body. But it’s a track many champions take in both sports and business. Tom Brady spent years learning to match his offensive set to any defensive scheme employed against him. Bezos figured out numerous ways to monetize Amazon, some independent of the economy or overall business climate.
Investment champions cultivate more than one approach to winning. Warren Buffet, famous stock picker, cultivated a second alternative approach to profits used quietly but extensively in his portfolios: Option selling.
Learning a new approach does not necessarily mean you have to abandon the first. Rocky won by incorporating both his new and old approaches.
You can too.
Relying on the old traditional approaches to investing may mean steady returns for a time. But we live in a rapidly evolving world.
Is Apollo Waiting for YOU?
Even those that champion traditional approaches are starting to keep a wary eye for their own Apollo Creed. Brad McMillan — who counsels independent financial advisors representing $114 billion in assets under management — told CNBC last month that the DOW would have to fall 30-40% to be fairly valued.
This is the guy that advises the advisors!
To even the highest capitalized of us, such a correction would represent a significant punch to the chin.
Which is why developing an alternative approach now is so crucial.
Diversifying, of course, is always important. Spreading your wealth around into alternative assets such as boullion, real estate, debt paper, commodities or collectibles is never a bad idea.
But simply diversifying and then still relying on rising values is like Rocky learning a few new combinations. It’s not enough to beat Creed.
For that, he needed an entirely new approach.
What it Means for You
For investors, that means adopting methods of investing that can profit in not just rising markets, but falling markets as well. Yes, it’s a foreign concept to many and may be to you. It’s switching from southpaw to leading with your right. But if you want to win a retirement title, or just simply avoid taking unnecessary punishment, its mission critical.
Does this mean the stock market will crash tomorrow? Of course not. Who knows when a correction or worse may come?
The point is, a world champion investor can adapt his strategies and asset allocations to be profitable in bull markets, bear markets or in stagnant markets. That means having an alternative approach at the ready to not only protect, but capitalize on such circumstances. The champion can adjust to whatever the market brings, even if it’s Apollo Creed.
If you sell stock options, you know that writing options is a strategy that can potentially help you do that. But simply applying the strategy to stocks is not enough.
If you want to beat Creed, you’ll need to be applying it somewhere out of stocks – in markets uncorrelated to stocks. You’ll want to position so that while the masses get pummeled by hard hooks and body blows, you’ll be scoring points. If your markets punch with a bear or steep correction, you can counterpunch with a combination of short option strategies – built to capitalize on such situations. If markets shift into bull mode, you can position for optimum benefit.
Either way, you’ll be completely uncorrelated to equities.
And when Apollo Creed finally appears in the stock market ring with his lighting speed and hammer fists, you’ll have a strategy up your sleeve to beat him – while other investors obediently lay down and take their pounding.
Developing an alternative approach with uncorrelated portfolios means you’ll be ready when this inevitably happens again.
This month we celebrate 41 years of one of the greatest sports movies ever made. Rocky and its first sequel provided inspiration to a generation of athletes and sports enthusiasts with its powerful themes and lessons.
Not the least of these was willing to break from traditional “wisdom” and consider alternative approaches to winning. Rocky couldn’t beat Apollo with only his left hook – just like you can’t protect your wealth from the next bear market with traditional investment methods.
To do it, you’ll have to switch from southpaw.
In today’s rapidly changing investment landscape, it’s becoming a necessity.
Heres hoping you “knock out” a great month of premium collection!