Mike Gillis, Portfolio Manager.
Much like a single investment is only a part of an investment portfolio, the newest Vancouver Canuck, Zack Kassian, is a single player on a team of players. Investors can use sports team management as a good example to follow when managing their own investments.
When Zack Kassian was acquired by the Vancouver Canucks at the trade deadline, the media play made him sound like Kassian alone is the player that will win the cup. Kassian was unfairly labelled as the answer; a Bruin killer. But that’s fighting last year’s battle. In the investment world this would be like buying long bonds today because they returned 18% in 2011. Or like putting all ones money in a single investment.
No, Vancouver Canucks GM, Mike Gillis is building and maintaining a portfolio. He’s not in the individual investment business. Gillis made the trade for Kasssian to improve the team. Kassian was acquired because he has attributes that make the portfolio better. As such, Gillis is diversifying his sources of return … so to speak.
Gillis traded offense for grit. Just like investors might acquire bonds to balance out the volatility of stocks. A trade of bonds for stocks might enhance portfolio growth. Stocks for cash might slow things down but will add defense. Cash for real estate might enhance income. Like any investment portfolio, successful investing means trading the pieces that contribute least, or that there is an excess of, for pieces that can be expected to contribute more or better or at different times.
Further, Gillis didn’t acquire Kassian to make the portfolio better for this year alone. No, he added Kassian to make the portfolio better going forward. Gillis expects Kassian to contribute in future years too. Hockey will exist next year. So too will the need to have productive investments. Gillis invested in Kassian to fight this year’s battles AND contribute in future years too. The investments investors make today are expected to contribute today and in future years too.
Depending on the opposition (the investment environment), the intent and hope is that the offensive (stocks) perform and when they don’t, the investor can count on defense and back checking (bonds) while goaltending (real estate? income?) is expected to fill the gap between the two.
Different investments contribute at different times under different conditions. In both the hockey world and the investment world. Hockey’s team perspective is like a balanced investment portfolio.
Kassian may well turn out to be a Bruin killer but it will take more than Kassian to win. Just like it will take more than bonds, stocks or real estate alone to have a portfolio that performs over time. All investments have a different strength and are expected to perform at different times under different conditions. But each investment is expected to simply contribute to the portfolio.
Mike Gillis might agree.Next time? More Risk Management. Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan