The Bill Russell Investment Strategy

“An investor needs to do very few things right as long as he or she avoids big mistakes.” – Warren Buffett


Bill Simmons of Grantland had an interview with NBA legend Bill Russell a while back and shared this interesting story (emphasis mine):

One time, we were discussing a revelation from Russell’s extraordinary biography, Second Wind, that Russell scouted the Celtics after joining them in 1956. Why would you scout your own teammates? What does that even mean? Russell wanted to play to their strengths and cover their weaknesses, which you can’t do without figuring out exactly what those strengths and weaknesses were. So he studied them. He studied them during practices, shooting drills, scrimmages, even those rare moments when Red Auerbach rested him during games. He built a mental filing cabinet that stored everything they could and couldn’t do, then determined how to boost them accordingly. It was HIS job to make THEM better. That’s what he believed.

This is a wonderful anecdote on leadership but I found an investment parallel as well.

Whenever people ask me for advice on their investments, it’s usually for a tactic that they can implement.

Is it time to sell my stocks?

Where should I invest in the bond market?

Should I buy this hot stock tip from my co-worker?

Should I put my entire retirement portfolio in gold?

Avoiding and acknowledging your mistakes is much more important that figuring out the best tactical portfolio moves to make RIGHT THIS INSTANCE.

Most investors want the answers to “should I do this?” or “should I do that?” instead of looking for their glaring weaknesses and minimizing the impact on their portfolio.

Cullen Roche from Pragmatic Capitalism touched on this last week when he discussed some of the problems with forecasting:

In a lot of cases, it’s about understanding the financial world so you can avoid the folly of falling for the biases that steer so many people to incorrectly position their portfolios at times.  And much of the time, portfolio construction isn’t about being right so much as it’s about avoiding big mistakes.  This is about increasing the odds of being right by knowing what’s wrong.

I love Russell’s approach to team basketball. It’s what made him one of the greatest teammates and champions in all of professional sports.

Investors tend to spend their time looking for the strengths and weaknesses in different markets, asset classes and stocks.  Most would be better off if they scouted themselves and their own biases to locate their own strengths and weaknesses, much like Russel did with his Celtics teammates.

You don’t need a mental filing cabinet to store them in like Russell did.  Keeping a simply journal of your decisions is a great way to learn from your own actions, both right and wrong.

The Bill Russell investment strategy is about avoiding the crippling mistakes that so many investors make on a consistent basis.

Here’s my list of the biggest mistakes to avoid:

  • Making investment decisions based on your political views.
  • Confusing your risk profile and time horizon with someone else’s.
  • Consistently trying to time the market.
  • Losing site of your long term financial goals.
  • Paying high fees on investments.
  • Having high trading activity.
  • Letting fear and greed take over at the extremes in market sentiment.
  • Having the majority of your investments tied up in one asset (company stock, your house, etc.).
  • Basing your decisions on what you heard on CNBC or Fox Business News.
  • Following every tick in the market and constantly checking the value of your portfolio.
  • Making too many short term moves with long term capital.
  • Basing your investments on the most recent performance.
  • Not saving enough.

For some it’s too difficult to recognize their own money flaws and they need help. It’s perfectly rational to seek advice from a financial advisor if this is this case. As Carl Richards has stated in the past, a financial advisor can be someone who will “stand between you and stupid.”

If all else fails, Jason Zweig of the Wall Street Journal has a piece of advice most investors would be wise to follow:

Approximately 99% of the time, the single most important thing investors should do is absolutely nothing.

Sources:
The Kobe question (Grantland)
Some thoughts on economic and market forecasting (Prag Cap)

Further Reading:
Common Sense Investment Rules
My Biggest Mistake of 2013

Now onto the best reads for this week:

  • Technological miracles will keep generating profits & jobs (Crossing Wall St)
  • Your advantages as an individual investor (Clear Eyes Investing)
  • Why is saving money so hard? (CNN Money)
  • Crazy stories from the 1999 tech bubble (Joe Fahmy)
  • The 1% secret to getting richer (WSJ)
  • What kind of errors are you making with your investments (Big Picture)
  • Creating a checklist is a great way to become a better investor (Jason Zweig)
  • Do the opposite of what Wall St. analysts say (Motley Fool)
  • Will index funds ever become too popular? (Yahoo! Finance)
  • Awesome profile about the selflessness of John Bogle (HBR)
  • “We influence our environments but we forget they influence us too.” (Farnam Street)
  • A checklist for fund investors (Morningstar)
  • Turney Duff: Focus on the actions, not the results (WSJ)

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  1. JC @ Passive-Income-Pursuit commented on Dec 20

    That’s an interesting parallel between Russell and investing. I remember reading the original article and thinking, no wonder they won so many championships and how many of the greats today do that. Avoiding the mistakes is definitely the most crucial part. Making up for a loss is so much harder, 50% loss requires a 100% return to breakeven.

    • Ben commented on Dec 20

      Simmons is one of my favorite writers and that one has stuck out in my mind as on of his best ones. Russell was definitely one of a kind. He had another article on Russell a few weeks ago that was also a good read.

      It took me a while to figure out that avoiding mistakes was half the battle and just staying out of your own way is actually a really powerful investment strategy. You only need to get a few things right but you have to avoid tons of mistakes to be successful. Many investors miss this point.

  2. nwberger commented on Jun 02

    I’ve been a Bill Russell fan since I was 16. Here’s his probably best record: He was in ten playoff series that went to seven games meaning the teams were pretty much equal. He won all ten.

    • Ben commented on Jun 03

      For as much as he did and as many championships he won he still may be under-rated. Seems to always be over-shadowed by Wilt, which is crazy to me.