Offense and Defense

Bill Parrott |

The New England Patriots trailed the Atlanta Falcons 28-3 in the third quarter of Super Bowl LI. At that point, the odds of winning the game were about 1% to 3%. Their situation was dark and bleak. Did the Patriots panic or quit? No. They kept their composure and followed their game plan despite digging a big hole, and slowly but surely, they engineered the most incredible comeback in Super Bowl history, winning the game 34-28.

The current investment environment is depressing as stocks and bonds continue to fall over worries Russia will start another meaningless war. Russia's eagerness to invade Ukraine overshadows other headwinds like inflation and rising interest rates.

Russia has a long history of war, dating back to 879. In 1979 they invaded Afghanistan and remained there for ten years.[1] During their occupation, the S&P 500 climbed 267%. Inflation peaked in 1979 at 13.3% and dropped to 5.8% by 1989. In 2014, they annexed Crimea, and since then, the S&P 500 jumped 135%.[2]

Inflation averaged 3.8% during World War I, and stocks averaged 10.1% from 1939 to 1945. The year after Pearl Harbor, the S&P 500 rose 20.3%, and by the end of the war, it soared 102%.[3]

I'm not comparing football to war, but we can learn much from the Patriot's Super Bowl victory.

  • Don't panic. If you panic and sell during down days, you'll never experience victory. Markets rise and fall daily, like the tide. Since 1926, the S&P 500 had stretches where the returns were less than 2%. From 1929 to 1944, stocks averaged 1.7%, from 1969 to 1975, they returned 1.6%, and from 2000 to 2011, they earned 1.7%. For thirty years, stocks averaged about 1.7%, but since 1926 they averaged 10.1% per year if you held stocks in good times and bad.
  • Follow your plan. The Patriots followed their game plan, and I'm sure they made adjustments. When financial chaos arrives, we often check our client's financial plans to ensure they are on the right path and the recent volatility is not impacting our client's goals. A financial plan allows us to navigate difficult circumstances with confidence, and it can help you as well.
  • Play offense. It pays to play offense when stocks fluctuate because they eventually recover. If you don't have equity exposure when they take off, you can miss significant opportunities. The biggest up days typically follow the biggest down days. If you wait for the all-clear signal, it's too late. After stocks bottomed in March 2020, they soared 45% over the next six months despite the uncertainty surrounding COVID.
  • Play defense. During financial uncertainty, it pays to play defense because stocks could remain depressed for a long time. If stocks drop, allocating money to cash and bonds can help preserve your assets.
  • Be patient. If your time horizon is three to five years or more, continue buying and holding stocks. If you need the money in one to three years, consider money market funds, CDs, T-Bills, etc.

The market hates uncertainty, which is why stocks are down, and volatility is up. If there is good news, stocks rise, and they fall if there is bad news. Unfortunately, it will remain this way until there is clarification surrounding Russia, inflation, and interest rates.

The Patriots won Super Bowl LI because they followed their plan, played both offense and defense, did not panic, and were patient. Let's follow the Patriots game plan, even if you're a Giants fan.

I know worrying works, because none of the stuff I worried about ever happened. ~ Will Rogers

February 20, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor.







[3] Dimensional Funds 2021 Matrix Book