What What What

What retail investors can learn from the drop goal?

Charles White-Thomson

CEO, Saxo Markets UK

Summary:  Co-authored by Simon Halliday, former English rugby union international, and Charlie White-Thomson, Saxo Markets UK CEO


We are getting to the business end of the Six Nations.  Recently I was in the cauldron that is Murrayfield to watch England, the auld enemy, and Scotland compete for the Calcutta Cup. My family and I arrived early to watch the teams warming up.   During this I noticed the talented, Henry Slade, kick two practice drop goals - one with the left and the second with the right foot - from wide out on the right touch line.  

This got me thinking – why don’t teams use the drop goal more regularly? It is an ideal way to keep the score board ticking over, can be executed without the referee’s whistle and is a great way to apply pressure and direction to a game. I decided to make contact with an old market colleague of mine and ex English rugby union international Simon Halliday who had a few observations :

“The current trend is to play to the corner and attempt to score a try from the line out, always a risk and often goes unrewarded (reference England’s Rugby World Cup exit 2015 when a drop goal or a penalty would have kept England in the competition).The drop goal is worth a valuable three points and is well within the skillsets of the modern player. Jonny Wilkinson and the English World Cup winning team specialised in this and Clive Woodward often talked about the value of keeping the score board ticking over. Dan Biggar the Wales Captain did exactly that against Scotland the other weekend to help develop a winning margin. South Africa beat England in the 1999 RWC quarter final through five successive drop goals by Jannie de Beer and it drained the life out of England who seemed to have done nothing wrong but be in drop goal range of their opponents. Jerry Guscott’s drop goal against the Springboks in 1997 was the final nail in the coffin and sealed the series for the British & Irish Lions. Lastly, who will forget the Joel Stransky drop goal to win the Rugby World Cup for South Africa against the All Blacks in 1995 to change a nation forever. So it is also a winning strategy! The last thing about a drop goal is that you have to have built up the potential of a winning position in order to execute such a play.”

In general, we agree with Clive’s premise, and it’s something that is as important on the rugby pitch as it is to the world of investments - keeping the value of portfolios ticking over in difficult times is critical when faced with today’s macro and geopolitical challenges. We are in unprecedently volatile markets, with 10 percent intraday moves in some of the world’s largest financial instruments, significant geo-political concerns including the war in Ukraine,  the United States showing inflation of seven percent a bit like an emerging economy, and evidence of many asset bubbles inspired by the huge stimulus that has been pumped into the markets. These markets are dangerous and difficult to read.

Keeping the value of your portfolio ticking over requires a key focus on “active game” management, from managing your risk to diversification. It requires investors to be proactive and thoughtful and that is why the drop goal is a good analogy. It is a deliberate act that requires thought, intent and practice.  It is not about freewheeling or letting the game or opposition run you – or, in financial parlance,  buy and hold. This includes downside protection or having a proportion of your portfolio in assets which generate returns when markets decline.  This can be achieved by having exposure to hedge funds with their long/short strategies or by buying downside protection on large global indices including the S&P 500, Nasdaq 100 or FTSE 100. Avoid being too concentrated in any individual asset. There is also no requirement to be fully invested all of the time, even though many wealth managers will push for this. Stepping back and considering the environment or game plan is also sensible. 

Sticking with the rugby analogy, resist the temptation to rush in and make big hits – take your time and play the full eighty minutes, keep the score board or portfolio value ticking over, most importantly manage your risk and stay confident.  Practice and consider what we in the financial markets can learn from the proactive act that is the drop goal. It served the great English rugby team of 2003 to good effect, and applied well, its financial equivalent will do the same for your portfolio.

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