Christian Golding: Investment lessons from Wallabies school-of-hard-knocks wipe-out at Rugby World Cup

It was heartbreaking to watch the Wallabies at the World Cup and the post-tournament fallout has started with the departure of coach Eddie Jones.

Jones’s return to the role after jumping off the England ship raised a few eyebrows, as did his innovative and creative approach.

He brought in untried players and a new game style — a high-risk strategy that, if it paid off, would have been declared a masterstroke for Australian rugby.

Unfortunately, as we know, it did not. The plan unravelled under pressure against Fiji and Wales, leaving the coach and the Wallabies badly exposed.

As debate rolls on about the future of Australian rugby, I couldn’t help but think about the parallels with investing that could be learnt from the Wallabies.

The importance of balance

One of the criticisms aimed at the Wallabies is that the selected squad overlooked proven specialist players and opted for a heavy focus on youth and enthusiasm.

Similarly, in recent years, some investors looked past traditional assets and became increasingly concentrated in new asset classes as they hunted for greater returns.

Although traditional asset classes are not always the flashiest players, they provide an important counterpoint that can be relied on during times of financial stress. That is not to suggest new asset classes and approaches should be ignored, because diversification remains an investor’s best friend in building a portfolio.

However, it is not an all-or-nothing approach. Each asset should contribute something different to a portfolio by serving a specific role.

Resilient portfolios are balanced across different asset classes and industries, which means when the pressure is on one sector, it can be alleviated elsewhere.

The Wallabies didn’t follow this formula and instead focused on a new generation of players who had an X-factor and were seen as the future.

In contrast, South Africa’s blend of old and new players created a great team that balanced individual talents perfectly.

At crunch time, liquidity is invaluable

Liquidity in a portfolio is like flexibility in a game plan, in that it allows you to respond and pivot when the environment changes.

The Wallabies’ approach to the World Cup saw the previous plan thrown out for a brand new one. However, when it did not work, the Wallabies appeared to lack alternatives and they were punished on the scoreboard.

Investors have also adopted a new game plan with an increased exposure to illiquid investments. This has occurred both directly and through many individuals’ superannuation, thanks to asset consultants singing the virtues of private equity, private debt and small property syndication to name a few.

Like an inflexible game plan, when the pressure comes on, the damage to a portfolio can be magnified for such assets given the lack of an active market.

There is a place for such assets within a portfolio, however, allowances must be made for their shortcomings, such as a lack of liquidity. This strategy provides investors with the flexibility to be responsive as the market demands.

The line between innovation and folly

Within the Wallabies squad for France, 16 players were under the age of 25, and 25 members of the squad of 33 were playing in a World Cup for the very first time.

Some of Australia’s most experienced players were left at home, depriving the squad of much-needed leadership and experience, and there were few pre-World Cup matches to properly bed down the new coach’s game plan.

Was a World Cup, the pinnacle event for the sport, the right place to roll out a new game plan and leave our most experienced players on the couch?

The current investment cycle, which is in a mature phase, may not be the best time to trial radical changes. Investors will have various levels of risk tolerance but even those more willing to take a chance on a big play must consider what may be on the horizon.

So, as you debate what lies ahead for the Wallabies and Australian rugby, think about the lessons that could apply to your own investment position.

Diversity across traditional and emerging investment themes, building liquidity into a portfolio, and considered innovation will increase the likelihood of a successful finance campaign.

Christian Golding is executive director of Pitcher Partners Perth