Nice analogy for asset allocation

A good story or analogy can boost the power of your communications. It will linger long after the rest of your conversation fades.

I like the following example, which I found in “Tuning up implementation of modern portfolio theory” by Scott MacKillop:

Now let’s talk about combining managers in portfolios. The legendary football coach Knute Rockne said: “As a coach, I play not my 11 best but my best 11.”

This is how we should build portfolios.

I’m no football fan. I won’t even watch the Super Bowl. But this quote resonated with me because it makes the point that it’s how  your players—or portfolio holdings—work together that’s more important than how the players perform individually. For example, you’ll typically be better off with a well-diversified portfolio of complementary holdings than with a bunch of top-performing stock funds.

I threw my copy of Investment News, where this appeared, into a file in my office so I could share it with you.

As you write about how you manage money, look for analogies like this that concisely convey a lot.

Note: This post, originally published in 2012, was expanded on Dec. 9, 2022.