The Real Reason Why Tom Brady and Your Mutual Fund Can't Stay On Top

Tom Brady and Your Fund Can't Stay On Top

by: Brendan Magee

All I have heard on the news lately is the punishment that has been handed down to Tom Brady and the New England Patriots.  Ironically, his suspension ends when his team plays the Indianapolis Colts, the team that reported that the Patriots were deflating the balls in last year's playoff game. 

This is where our investing lesson begins. The Patriots have won four Super Bowls. In each of those games the other team lost, 2004 still hurts. Certainly, the Patriots are a great team with tremendous athletes.A somewhat deflated football couldn't account for a decade worth of great football, or could it? 

The same could be said for every team in the National Football League. Very of the games are complete blowouts. They usually come down to the final two minutes of the game to decide the winner. Every team spends hours of preparation looking for that little edge to put them over the top. 

Now let's just say a deflated football or filming the other teams practices gave New England the edge they needed. Pro football is a pretty close knit fraternity and the players and coaches move from team to team each year. New England's secrets aren't going to stay a secret for long. Other teams want to win championships and enjoy all the perks that come from winning football games. 

If they realized that New England has gained a competitive edge, they can't just sit back and do nothing. Otherwise, New Engalnd will win all the time and the rest of the teams will be left to settle for second place. So the Colts report New England deflating the football or the Eagles report to the league offices New England filming their practices and stealing their hand signals. The edge is gone and New England falls back to the pack a little bit. They do not stay on top. 

The same thing happens with mutual funds. A fund has a record year. It's performance has far and away outperformed the pack. That fund manager is sought out for television appearances, covers of magazines, makes the speaking circuit and is paid thousands for his or her insights, gets offers to write books, etc. 
The rest of the fund managers don't get any of these perks. They are left to answer why their fund didn't perform as well as the champion. 

Let's say the top fund manger's performance came from tech stocks. Stocks the other fund managers didn't pay too much attention to. They have two choices, stay put and allow the top performing fund to maintain their competitive advantage or start investing in those same top performing tech stocks. How could they explain another year of under performance? How can they risk their jobs? Answer, they don't. They invest in those same tech stocks and the competitive edge is now gone. The champ is now one of the heard. 

Just like the N.F.L. the mutual fund industry is very competitive and is played by people who have a tremendous amount of ability. No one gets into that industry to settle for second place. They are not going to allow the other teams to maintain a competitive advantage for long.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments, go to www.Coachgee.com or call 610-446-4322.