45 years after earning their NHL franchise, my L.A. Kings recently won their first Stanley Cup title and I think there is a major takeaway for investors in their victory: the Kings had trouble scoring goals from day one of the season. In fact, they made the playoffs despite being one of the lowest scoring teams in the league. The thing that did it for them was their defense-first style (and an amazing goaltender).
The Kings almost never put themselves out of contention in a game by giving up a bunch of goals early. They accomplished this by making sure each player took care of his defensive responsibilities first. They made sure they had at least three skaters back and ready for their opponent’s offensive opportunities and they worked at least as hard in their own end as in their opponent’s end of the ice. ONLY THEN would they look for opportunities to counter attack.
Playing “defense first” in the markets means following Warren Buffett’s top two rules: 1) don’t lose money and 2) don’t forget rule number one. In the real world we’re going to lose money. What Warren and the Kings are telling us is that you just can’t lose very much. Don’t ever put yourself at risk of losing so much that you can’t easily make it back. Focus on protecting your portfolio by limiting your risk first. ONLY THEN should you look for opportunities to profit. This requires extraordinary patience and discipline but I believe it’s the only road to extraordinary results.