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Tuesday, July 10, 2018

What The World Cup Can Teach You About Investing

By Justin J. Kumar

Every four years, almost half the planet becomes entranced by international soccer as the World Cup brings together some of the greatest talent in the world. Whether or not you are a soccer fan, you can glean some lessons from the structure of the tournament, the styles of play, and the paths to the goal of winning it all. Here are some takeaways:

1) Look outside for new prospects: The United States was unable to qualify for the 2018 World Cup because there were better teams in its qualifying region. Many investors stay too tied to domestic stocks when the rest of the world presents viable alternatives in comparison. It may pay to look beyond your driveway. The previous champions, Germany, finished last in their group. What has happened does not always predict what’s going to happen.

2) You don’t have to take every shot: Some teams lost this year because they took too many shots, most of which were errant. They did not spend time playing defense in order to play better offense later. Some of the best teams waited until the right moment to strike. They bided their time and waited for opportunities; when the time came, they struck. Similarly, you don’t always need to make trades or constantly be invested in the markets, especially if the timing is not right. It’s a better strategy to look for places of higher reward with lower risk.

3) Probabilities over possibilities: Many of the best teams stayed in the tournament into the latter stages because they tend to have strong squads every time. Every once in a while, there may be something shocking, but generally, the data and figures tend to show practical trends and tendencies. It tends to pay off in the long run to stick to a well-developed strategy, even though there may be short-term ups and downs, because the statistics favor it. There are always some feel-good stories, but in the end, talent wins out on both the individual and collective levels.

Did you know? The winning World Cup team will receive $38mm and the runner-up will receive $28mm. Overall, an estimated $400mm will be distributed in prize money, which is less than 10% of what the organizing body, FIFA, is projected to make from the tournament.


Important Disclosures

The Investor Education Institute (“IEI”) is not an investment adviser registered with the U.S. Securities and Exchange Commission or any state.  The IEI publishes financial publications of general and regular circulation that offer impersonal advice and disinterested commentary and analysis.

The IEI utilizes a Proactive Asset Allocation Model (“PAAM”) that is designed to provide insight into investing in today’s financial markets. PAAM utilizes quantitative-based buy, sell and reallocation indicators, selecting from US and global securities, in seeking to achieve attractive risk-adjusted returns over a long-term investment horizon. As with any investment strategy, IEI has in the past, and may in the future, modify this investment approach and parameters of PAAM in any manner which it believes is consistent with the strategy’s overall investment objective.  In that light, the following material modifications were made to PAAM: in February 2009 (creation of Universe Trend and Cash Comparison Indicators for trend analysis), June 2009 (creation of Long-Term Momentum Indicator for trend analysis), September 2009 (expanded Asset Class Ranking System and started computerized testing), December 2009 (creation of Global Indicator Set for buy and sell signals), April 2010 (inception of PAAM Computer Model), October 2010 (implementation of Tactical Indicators and Signals for short term risk management), January 2011 (modify Global Sell Signal with additional criteria including pattern determination), June 2011 (close Global Signals with stop loss criteria), September 2011 (inception of Long Only Model), May 2012 (modify Global Buy Signal wait period to enhance signal timing), October 2012 (first use of Stock Model), November 2012 (implement ETF replacement criteria), December 2012 (additional historical data for Cash Comparison Indicators), November 2015 (modify Global Buy Signal with additional criteria), June 2016 (modify Tactical Sell signal criteria), May 2018 (expanded Asset Class Ranking System, Tactical Asset Class Selling, Mini-Buy signal implementation); however, none of these changes modified the objectives or overall investment strategy of PAAM. Rather, as noted previously, IEI made these changes to seek to enhance the manner by which it runs PAAM, and thus each change, individually or in the aggregate, might have impacted the performance of PAAM (either positively or negatively, depending upon the efficacy of the changes(s)) after their implementation.  For more information regarding any of these material modifications, please contact IEI at 1-800-504-8505.

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