Every Shot Must Have a Purpose

  PDF Download (Paid Subscription Required):  Every Shot Must Have a Purpose

I rather enjoy playing golf. But there’s no denying golf is infested with raccoons trying to sell you stuff. Swing trainers. Special clubs. Systems “guaranteed” to lower your handicap.

This ranges from the oversold…

…to the utterly ridiculous.

Not to mention a fair bit of coattail riding on anyone with an aerospace engineering background.

Golf’s a lot like investing that way. And a lot like life, for that matter. Once I realized this, I began to enjoy the game much more, as an exercise in both mental and physical discipline.

Any progress I’ve made on that front, I credit first and foremost to the book Every Shot Must Have a Purpose, by Pia Nilsson, Lynn Marriott and Ron Sirak. It’s rather critical of current methods of golf instruction and training—particularly of what the authors see as an overemphasis on technical mechanics at the expense of player psychology. Early on, they write:

This is where honesty comes into play. The first step toward expanding our perception of the game in general and reaching a better understanding of our own game in particular is to face reality. If that bad swing was caused because you tensed up under pressure, hitting a million practice balls won’t fix the problem.

Rather than the minutiae of swing mechanics, or gimmicky shortcuts, you’re better off focusing on:

  • Course strategy and risk management
  • Shot commitment
  • Focus and tempo

We see this in investing, too. Particularly when we’re investing other people’s money. The most grievous portfolio construction issues I see inevitably seem to center on basic issues of strategy and commitment. Particularly around whether a portfolio should be built to seek alpha or simply harvest beta(s). 

You don’t have to shape your shots every which way and put crazy backspin on the ball to break 90 in golf. Likewise, not every portfolio needs to, or even should, strive for alpha generation.

There are few things more destructive (or ridiculous) you can witness on a golf course than a 20 handicap trying to play like a 5 handicap. And it’s the same with portfolios. For example, burying a highly concentrated, high conviction manager in a 25 manager portfolio at a 4% weight. Or adding a low volatility, market neutral strategy to an otherwise high volatility equity allocation at a 2% weight. (See: Chili P is My Signature

I’ll go out on a limb and suggest very few financial advisors and allocators build portfolios capable of generating meaningful amounts of alpha. The hallmarks of portfolios purpose-built for alpha generation are concentration and/or leverage.

The hallmark of a portfolio lacking strategic direction and commitment, on the other hand, is optical diversification that rolls up into broad market returns (more pointedly: broad market returns less expenses).

I’m absolutely not arguing every portfolio should be highly concentrated. Or that every portfolio should use leverage. I’m merely arguing that portfolios should be purpose-built, with portfolio construction and manager selection flowing logically from that purpose. 

How is it we end up with portfolios that are not purpose-built?

We don’t commit to the shot.

Nilsson, Mariott and Sirak describe a textbook golf example:

Patty Sheehan, the LPGA Hall of Fame player, was playing the final hole of a tournament when she needed to hit a fairway wood second shot to a green protected by water on a par-5 hole. A birdie was essential to play in contention, and the possibility of an eagle was a chance she had to take. What resulted, however, was her worst swing of the day–in fact, probably one of the worst swings she ever made in competition—and she cold topped the shot. As the ball bounded down the fairway and into the creek short of the green, she watched her chances of winning disappear with it. […]

[T]he TV commentators missed the point. If they wanted to run a meaningful replay they should have shown the tape of the indecision BEFORE Sheehan hit the shot. First she had her hand on a fairway wood, then she stepped away from the ball and her caddie handed her an iron. Then she went back to the fairway wood. The indecision in the shot selection led to a lack of commitment during the shot. The poor swing resulted from poor thinking.

For an investment committee, the rough equivalent is the four-hour meeting that results in a 50 bps change (from 4.50% to 5.0%) to the emerging markets weight in the Growth model portfolio.

At best you are rearranging deck chairs with these kinds of moves.

Granted, when it comes to investing some of us will have a more difficult time managing shot commitment than others. For the self-directed individual, this is simply a matter of managing your own behavior. Advisors and institutions, on the other hand, must manage other people’s behavior, often in group settings.

There’s no easy solution to this issue. It can be fiendishly difficult to manage. But there’s at least one essential precondition for shot commitment in investing and that’s a shared investment philosophy. A code.

I’m not talking about the obligatory investment philosophy slide of everyone’s investor deck that’s included to pay lip service to a “process orientation.” I’m talking about genuine philosophical alignment. The kind of philosophical alignment that runs deep into the marrow of the decision makers’ bones and therefore permeates every aspect of portfolio design and management.

What does this look like in practice?

More time spent on philosophical discussions around persistent sources of returns and, more importantly, whether the investor(s) can credibly access them.

Significantly less time spent on chasing shiny objects, debating the merits of individual investment manager performance and statistical rankings of investment manager performance. (In fact, it’s okay to spend basically no time on this at all)

Significantly more time spent on managing the alignment of expectations across investment professionals, clients and other stakeholders in an accessible, plain-language manner. 

This is fairly straightforward in principle, but extremely challenging to execute.

  PDF Download (Paid Subscription Required):  Every Shot Must Have a Purpose

To learn more about Epsilon Theory and be notified when we release new content sign up here. You’ll receive an email every week and your information will never be shared with anyone else.


  1. Avatar for faust faust says:

    I really love this post because sports like golf, baseball and cricket are so very applicable to the game of investing and life. All three sports are essentially static: i.e. the person with the ball at any one time and their psychology and mindset have a disproportionate impact on any outcome.

    In baseball and cricket, although team sports, no one can help the pitcher or bowler when they are about to throw or bowl the ball to the batter/batsman. Similarly, for someone playing golf, no amount high-fives and encouraging words makes up for the fact that you and only you are responsible for what happens next.

    The mental and psychological aspects of these games needs to be studied more in the context of investor psychology and performance.

  2. Avatar for nick nick says:

    Thanks Sean! There is a great post from Graham Duncan that touches on many areas of this: https://medium.com/@graham.duncan/the-playing-field-dfb9a1473f43. Definitely worth reading if you haven’t seen it before.

    His comments on tempo in particular have resonated with me since I first read this piece. And they’re directly applicable to this idea of “shot commitment”:

    “An investor’s relationship to time also influences how he or she views periods of recovery or quiet. Good investment management comes from a mindset reflecting the assumption that the manager will be investing for decades, but that investment activity is as a series of sprints and recoveries rather than one extended marathon. As Lenin once said: “There are decades where nothing happens; and there are weeks where decades happen.” The tempo of a strong investment culture is in sync with the reality of long periods of inactivity. There is often a shared mood that the game is afoot, but not a rushed feeling to do something based on fear or greed. Then, when the moment is right, top investors are startlingly aggressive.”

  3. you nailed it when you said this can be fiendishly difficult. in the alpha generation bucket, how do you encourage an uncorrelated portfolio of trades to capture diversified risk premia when it is concentration which moves the needle? Some of it is certainly “commit to the shot”. “This is our diversification/concentration strategy, we’re sticking to it because it is what we believe”.

  4. p.s. can i get a pdf of this to share? not seeing the link.

  5. Avatar for nick nick says:

    Gotta defer to Ben and Rusty on the technical question (I am wondering if the button only appears for the long form notes?). But thanks very much in advance for sharing!

  6. We will get a PDF put together to make it easy to share! We usually do it just on long-form but happy to do it here, too!

  7. More ridiculous than a 20 trying to play like a 5 is a 3 acting like he is good at golf, the result of a brilliant industry (raccoons in the vernacular).
    Great post!

  8. Reminds me of something I read from an analysis of Clausewitz……
    What are the characteristics of a great General [player] ?
    Clausewitz suggested two.
    “The first was intuitive, the quality labeled by the French coup d’oeil: the almost instinctive capacity to discern through the fog of war what was happening and what needed to be done; a flair for essentials that enabled the commander to select the right course almost without thinking, and certainly without going through the elaborate process of calculations of possibilities and probabilities that would paralyze the decisions of a lesser man
    The second requisite, said Clausewitz, was the capacity, having taken a decision, to stick to it: determination. Everything would conspire to convince the general that his decision had been wrong.

  9. Avatar for nick nick says:

    This reminded me I have been meaning to revisit Clausewitz…

  10. A PDF link has been added to the note! You should be able to find it at the top and bottom of the text.

  11. Love this post re deck chairs on the Titanic. Why? In my view asset allocation and efficient frontier are pure hokum that will be fully exposed finally as fraudulent in the fullness of time…next asset crash. Think 2008 Super-sized (08 everything down and in nearly equal measure except gold, cash, and Tsys). Gotta start thinking outside the box. Diversify among risk, non-risk, and anti-risk assets.

  12. Avatar for faust faust says:

    Thanks for the reply. Having time in order to move is where everyone wants to get to, the problem for those managing other people’s money (particularly with institutional money) are that the demands for returns forces people to take more shots. Patience is too often punished, so they swing and miss and for those not used to missing those shots, they get even more desperate.

Continue the discussion at the Epsilon Theory Forum


The Latest From Epsilon Theory


This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.