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  • Brett Schafer

10 Lessons For Investors From Legendary Coach Bill Walsh

Updated: Sep 23, 2021

After seeing high praise for it on Twitter, I decided to download The Score Takes Care of Itself, by Bill Walsh. Bill is one of the best NFL coaches ever, winning three super bowls and inventing the West Coast Offense, which is what the majority of offensive strategies are based on in today’s NFL.

In the book, Bill focuses less on the actual game of football and more on his life/business philosophy that he calls “the Standard of Performance.” I’m only halfway through the book, but already I can already tell it is the best business philosophy book I’ve ever read. Each chapter, typically only 2-3 pages in length, has me thinking about how to improve my process.

Seeing as I or anyone reading this is likely focused on improving their investing skills, here are 10 quotes from the book I think apply to the investing/financial world. Following each quote will be a short explanation of how it applies to investing (I promise I won’t write nearly as eloquently as Bill though).

“Within our organization the Standard of Performance served as a compass that pointed to true north. It embraced the individual requirements and expectations — benchmarks — required of our personnel in all areas regardless of whether things were going well or badly. That’s the toughest thing — constancy amid chaos or presumed perfection.”

In investing, the scoreboard changes tick by tick each trading day. Some weeks the market is calling you a winner, other times it can make you think you’re a complete loser. All the individual investor, analyst, or portfolio manager can do is focus on doing their job the best they can. Getting too up or down because of short-term performance can set you up for failure over the long term.

“I have a terrible time closing out a set in tennis. Why? Because I tell myself to try harder and harder, to hit the ball better and better. I become a victim of myself and go into a kind of stupor because I’m trying so hard without really knowing what the heck I’m trying to do…The key to performing under pressure at the highest possible level, regardless of circumstance, is preparation in the context of your Standard of Performance and a thorough assimilation by your organization of the actions and attitudes contained within your philosophy of leadership.”

I think the parallels to investing are clear here. You want to be constantly preparing and doing scenario planning so when shit hits the fan (i.e. a huge portfolio drawdown, market volatility, whatever) the decision on how to act has already been decided for you. Summing it up, I think Bill wanted to make as many decisions as possible, or plans for making decisions, when the operating environment was as stress-free as possible. Investors should strive for the same.

“Consequently, the San Francisco 49ers could function under tremendous stress and the forces that work on individuals in competitive situations. They were able to function under all the media hype and the absolute intensity of the circumstances we were in. In that kind of environment — your version of the big game — you must reach back and rely on your ability to do things at a high level. There isn’t much time to meditate or think things through. The pressure of the situation can just wipe that all out, and you’re left with the raw bones.”

For investors, I think this applies directly to those stressful, panic-inducing environments like the spring 2020 COVID meltdown and the Great Financial Crisis. On the flip side, it could also apply to a disciplined investor at the height of a blow-off top like the last few months of the 1990’s tech bubble. Think of how Buffett and other investors who stayed out of the mania were criticized then, and how your decision-making might change if that stress was put on you.

“Be bold. Remove fear of the unknown — that is, change — from your mind. Respect the past without clinging to it: ‘That’s the way we’ve always done it’ is the mantra of a team setting itself up to lose to an organization that’s not doing it that way anymore.”

Understanding when an operating environment has changed (when it truly “is different” this time), or when you’ve identified a better way of doing things, can provide great opportunities for investors. This is easier said than done. Straying from the traditionalists or the crowd is uncomfortable, especially in investing. Admitting that you were wrong, even if it is just to yourself, can be even more difficult.

“I learned through years of coaching that far-reaching contingency planning gave me a tremendous advantage against the competition because I was no different from anyone else; it was almost impossible for me to make quick and correct decisions in the extreme emotional and mental upheaval that accompanied many situations during a game. I defy you to think as well — as clearly — under great stress as you do in normal circumstances. I don’t care how smart or quick-witted you are, what your training or intellect is; under extreme stress you’re not as good. Unless, that is, you’ve planned and thought through the steps you’re going to take in all situations — your contingency plans.”

Some overlap from a previous quote, but imperative for investors to think about this one. Contingency planning can come in the form of portfolio management or idea generation (gathering information on companies that you’d like to own if they were selling for the right price).

“Competition inevitably produces randomness that can leave you grasping at straws. I attempted to reduce the randomness in my responses. Hearing someone describe as being able to ‘fly by the seat of his pants’ always suggests to me a leader who hasn’t prepared properly and whose pants may soon fall down.”

Like a football game, the market is highly unpredictable. Investors should seek to reduce the randomness in their process and how they react to market movements (or just movements of portfolio companies).

“In my years as a head coach, I wanted a democratic-style organization with input and communication and freedom of expression, even opinions that were at great variance with my ideas. But only up to a point. When it was time for a decision, that decision would be made by me according to dictates having to do with one thing only, namely, making the team better.”

Replace “head coach” with “portfolio manager” and “team” with “portfolio” and there is a great lesson for investors here.

“The responsible leader of any company or corporation aggressively seeks to ensure its continued prosperity. It’s the mark of a forward-thinking leadership. A strong company that goes south after the CEO retires is a company whose recently departed CEO didn’t finish the job. If everything goes great when you’re around but slows or stops in its tracks when you’re not there, you are not fulfilling your responsibilities. Your leadership has not percolated down.”

I don’t think this applies specifically to investors, but maybe what to look for in portfolio companies. Constellation Software, a company we recently studied, comes to mind when reading this passage. Apple and Microsoft come to mind too.

“Nevertheless, it’s easy to get caught up in or enamored of lofty titles, praise, and flattery as you subconsciously attempt to become the character others have created out of who you are. That character isn’t you, but it’s an addictive attraction if the plaques, awards, and commendations start rolling in. Believing your own press clippings — good or bad — is self-defeating. You are allowing others, oftentimes uninformed others, to tell you who you are.”

That last sentence is what trips up so many investors. A lot of us (myself included) have our portfolios influenced by what others think of them when in reality someone’s opinion of your holdings means nothing. Performance over the long term is what matters. Everything else should just be treated as noise.

“A leader must know when his team is making a lot of noise signifying nothing. UCLA’s coach John Wooden summed it up like this: ‘Don’t mistake activity for achievement.'”

A great one to end on. Replace “leader” with “investor” and “team” with “portfolio” and you can sum up 99% of the useless noise that goes on in and around the markets each day.

Again, highly recommend picking up a copy of this book. I’m only scratching the surface here.

#BillWalsh #InvestingLessons

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