En route to an 8-0 start, the New England Patriots scored points in remarkable bunches, and kept putting points on the board when the games were out of reach. Whether it was sports-talk radio, the post office, at school or just about anywhere, seemingly everyone was trying to define "running it up."
In the middle of all of the discussions, it dawned on me that investors love running up the score, and don't recognize the problems it sometimes creates.
In sports and investing, my definition of running up the score has less to do with points than attitude. It's a loss of perspective, leading to actions that show a lack of respect for the opponent.
"People are taught to look at performance in relative terms, as if it was a game where you want the highest score," says Donald G. MacGregor of MacGregor-Bates, a Eugene, Ore., firm that researches judgment and decision making. "Over time, when you think of investing as a game with wins and losses, somebody else's objectives become yours."
Typically, you adopt the objectives of the fund manager. Whatever they have planned for their fund is what you sign on to when you fill out the application.
You then assume that if the fund reaches its objectives, you will reach yours.
But over time, an individual's financial objectives are likely to change, while a fund's targets typically remain the same. You may keep winning the game, but you may be playing the wrong competition.
Says MacGregor: "In time, you become so concerned about the numbers - about beating the market, or doing better than your neighbor, or about amassing some big amount of money - that you get distracted from what you are really after."
In mutual funds, it happens in several ways.
First, there is the loss of the big picture.
In funds, investors often let their winners run, leading a portfolio away from its asset allocation. Culling winners and investing in laggards to stick to the game plan is hard, but anyone who didn't lock in their bull-market gains in the mid-1990s knows that letting winners run unchecked and failing to rebalance a portfolio can be costly.
Next, investors make winning their actual goal.
For most people, investing in mutual funds is about achieving enough success to live happily ever after. Running up the score means being focused on achieving the luxury lifestyle or doing better than the neighbors, where excess returns are seen as the way to live it up.
When maximizing returns becomes the goal, asset allocation and risk tend to get thrown under the bus.
That manifests itself in holding on to higher-risk strategies too long, rather than becoming more conservative with age. Years of success with stock funds, for example, can lead an investor to keep going for the bigger potential returns in stocks, rather than adding a slug of bond funds to the mix.
That's an investment decision being made with the score in mind, rather than the ultimate desired outcome. The object is not to have the best growth fund or the most super-charged sector fund, but rather to have a portfolio that reaches your goals.
Finally, investors act as if they haven't scored before.
It's easy to get excited about putting points on the board if it's your first trip to the end zone.
Many investors look at past returns and are unhappy; somehow, their funds failed to deliver "enough," even if those funds were really doing their job and delivering expected performance.
For an investor with unrealistic expectations on returns, almost every fund feels like a laggard; instead of letting funds do their work and benefiting from the power of compounding, some investors jump around, constantly looking for the next vehicle that they think will get them to the promised land in a hurry.
Says MacGregor: "This isn't a competition, it's a journey. Some people get so focused on winning and where they think they are going that they lose sight of where they have been; they're dissatisfied with their investments, even though they are well on their way to reaching their goals with them. ... It's not always about looking for the 'next score.' Sometimes, investing is about achieving peace of mind."
Charles Jaffe is senior columnist for MarketWatch. He can be reached by mail at Box 70, Cohasset, MA 02025-0070.