Pulling the Goalie: What Investors Can Learn About Risk from Hockey
It matters how we think about risk and return
Today, during the National Hockey League (NHL) playoffs, I get to write about two of my favorite topics: investing and hockey (ice hockey, of course — as a stereotypical Canadian who’s skated on frozen ponds and backyard rinks since the age of four, could I be talking about any other kind?). One specific aspect of hockey holds valuable lessons for investors: the exciting time late in a game when the coach of the team that’s behind in the score replaces the goalie with an extra attacker.
I’ll summarize and add my thoughts to a provocative and popular paper by Cliff Asness (co-founder of AQR Capital Management) and Professor Aaron Brown, who challenge the conventional wisdom of when to pull a goalie, and who show us how this relates to investing (a more in-depth version of the paper is available here). In fact, well-known (Canadian) author Malcolm Gladwell takes the goalie-pulling analogy a step further in an episode of his Revisionist History podcast. You don’t need to know anything about hockey — I’ll provide you with some context — to appreciate why it matters to you as an investor when you should “pull your goalie.”
