Defense Wins Championships

Life here in northeast Wisconsin just got a whole lot warmer! In case you haven’t heard, The Green Bay Packers are headed back to the Super Bowl after a smash-mouth dispatching of the rival Chicago Bears on Sunday afternoon. But instead of a high-scoring affair as had been the case in Atlanta the previous week and for games at Philadelphia and the New York Giants and the New England patriots over the past month or so, the Bears game was won by the defense. Blitzes, forced fumbles, open-field tackles, and game-clinching interceptions (two, in fact) were the highlights of the day.

Believe me when I say that I know how important it is to have a balanced attack. Offense puts you ahead – the Pack never trailed during the Bears game. But an amazing statistic to me is that the Packers never trailed by more than a touchdown all season! To me, that’s incredible because they’ve played against plenty of high-powered offenses. It was their defense that kept them in every single game, even on days when Aaron Rogers wasn’t at his best.

According to Don Banks of Sports Illustrated, defense might just be the story of the upcoming Super Bowl too: it’s only the third time ever, and the first time since 1982, that the top two teams in terms of scoring defense are meeting in the Super Bowl. Pittsburgh ranked first during the regular season (allowing just 14.5 points per game) and Green Bay finished second (allowing a mere 15.0 points per game).

The cold, hard fact is that defense wins championships in the NFL. But I believe the same holds true in investing, and in life. Over the past eleven years, the major U.S. markets have largely been flat. This is true for the Dow Jones Industrial Average, the S&P 500 Index and a downright generous statement to the NASDAQ 100. You’ve heard time and time again about the “lost decade.” You’ve read about the two terrible bear markets of the past decade – they’ve been all that. But I continue to believe that the key to successfully navigating them and in ultimately getting ahead lies in a stout defense against heavy losses.

Sacks hurt. Blitzes are downright painful. And turnovers can change the outcome of a game and just maybe a career (just ask jay Cutler). In the waning minutes of Sunday’s game, the Bears needed to play catch-up, and with their starting quarterback on the bench his replacement stepped into the foray of the ultimate high risk/high reward scenario. He went for it all, and came up empty. Investors (and advisors) sometimes do the same.

This analogy is so apt for today’s investor, especially when the markets are getting back to where they first were a decade ago. We all want the markets to continue their charge higher – I sure do! And I want to participate as much as possible while still being cognizant of the fact that markets aren’t always cooperative. But when faced with the reality that much (if not all) of the economic recovery has been engineered, it is hard to forget that markets can go up for a long time, and they are still the best vehicle for creating comfort-sustaining wealth.

The trendlines of all of the ETFs we own in each of our core portfolios are strong right now, as they’ve been for the past few months (click here to view). We carry significant market exposure right now, and our intention is to continue to sport this posture for as long as the rising trends remain intact. I am as eager to grow our clients’ portfolios as anyone is, and I recognize that flat investment performance is about as useful as a 0-0 Super Bowl tie. This rising trend could run uninterrupted for a while, and if so all of our firm’s managed portfolios would participate nicely given our current allocation to the markets. We stand ready to adjust this allocation if necessary, but only when the current market trends deteriorate to the point that action becomes prudent.

By | 2011-01-25T09:08:14+00:00 January 24th, 2011|Market and Portfolio Commentary|Comments Off on Defense Wins Championships

About the Author:

Mark’s commitment to objective, independent wealth management led him to establish The Appleton Group LLC in April of 2002. With over 19 years of experience in the financial services industry, Mark serves as portfolio manager for our private client group, and co-manages all assets held in our suite of portfolio offerings. His responsibilities include risk analysis, asset allocation, market research, and institutional client development. Mark also serves as both Principal and CEO of The Appleton Group LLC. He earned his Accredited Investment Fiduciary (AIF) designation in 2016