On Sunday, Jordan Love completed his first game as the Packers’ new starting quarterback. It went pretty well. Well enough that a fan could start to imagine how his career could unfold.
Thankfully, we have the past 30 years of statistical evidence on Packers quarterbacks to help us gauge how Jordan Love’s career could develop.
Over the last 30 years, Packers quarterbacks have held the starting quarterback position for an average of 15.5 seasons, started an average of 239 regular season games, and averaged 22 post-season games during their tenure. On average, they have earned 3.5 league-wide Most Valuable Player awards during their Packers career along with one Super Bowl championship.
If Jordan Love does not live up to these 30-year averages, he will be statistically below average. Or will he?
If we expand our sample size to the entire National Football League (NFL), we find that the average NFL quarterback lasts a mere 4.4 seasons and wins 0 Super Bowls during their tenure.
From that perspective, if Jordan Love lasts five years as the Packers’ starting quarterback, he would be considered above average.
Your perspective on Jordan Love’s eventual career will directly depend on whether you are basing your expectations for his future on recent Packers quarterbacks’ averages or on past NFL averages.
The same can be said for the various pieces of your diversified investment portfolio. We have a multitude of long- and short-term averages for every investment asset class under the sun. This leads to built-in expectations for future average risk and average return even though averages are not predictive.
We expect stocks to be pretty volatile, but potentially reward us over time with returns that are higher than inflation. We expect bonds to be more docile, but provide returns that are closer to inflation over time.
How do we react when our asset classes disappoint us during a season?
It can be very tempting to remove those “disappointing” assets from your diversified portfolio and replace them with an asset that exceeded expectations recently with the hope (or misguided expectation) that short-term performance will continue indefinitely.
Unlike quarterbacks which rely on the skills of a single person to rebound from a disappointing season, the financial markets reflect the short-term opinions of millions of people around the world who vote with their dollars every second of the day. The odds of reverting to a long-term average over time are much higher for an asset class than an individual quarterback (particularly one who is injured four snaps into a season).
Thus, if you find yourself disappointed with a particular asset in your portfolio, take a step back and determine if your expectations and timeframe were reasonable. Many times you may find that recent “disappointment” is another name for long-term “opportunity.”
Quote of the Week: Jason Zweig: “Regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the stage for surprisingly good performance.”