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BAM Intelligence

Compounded Mistakes Can Lose You Money, and the British Open

To European professional golfers, there is no tournament win more coveted than the Open Championship, or British Open as we call it here in the United States. It is the oldest championship in golf, steeped in history and tradition. Every golfer growing up across the pond watches this storied contest and dreams of one day hoisting up the Claret Jug.

Sometimes those dreams become reality. Other times, mistakes can add up and that dream evaporates. At the 1999 British Open, which was held at Carnoustie, a French journeyman golfer named Jean Van de Velde came from nowhere to surge atop the leaderboard. He walked to the 18th tee in the final round with a seemingly insurmountable three-stroke lead. After years of struggling on tour, he now had a chance to win the most prestigious tournament in golf and kiss the Claret Jug. In fact, given his wide lead, his name had already been engraved on the trophy.

The crowd rushed to the final hole in order to catch a glimpse of what would have been the first Frenchman to win the Open since 1907. Van de Velde seemingly had the tournament in the palm of his hand, needing only a double bogey to seal his victory.

Despite his cushy lead, he opted to tee off with a driver instead of a safer club, such as an iron. Van de Velde pushed his tee shot to the right and landed in the rough.

Rather than playing it safe and laying up before the Barry Burn (golf parlance for a stream running in front of the green), Van de Velde again took an aggressive approach and launched his second shot over the water. The ball, however, ricocheted backwards off the grandstand into the knee-deep Scottish rough on the wrong side of the water.

On his third shot, the course’s thick grass proved too much for Van de Velde. He managed to advance the ball only a few yards, leaving himself directly in the stream. Van de Velde became visibly squeamish as he spiraled downwards. Watching his play on the hole unfold was like witnessing a car wreck in slow motion.

He then famously took off his shoes and socks and climbed down the bank and into the stream, considering an attempt to play the ball from the water. In what was perhaps the only wise decision he made on the entire hole, he decided against taking the shot and instead took a drop, at which point he hit his fifth shot into one of the greenside bunkers. The Frenchman would eventually make a triple-bogey, and ultimately go on to lose the Open in a playoff.

With each shot, Van de Velde’s mistakes compounded, exacerbating the one before it until they culminated in an unimaginable collapse. For the first time in history, a player’s name had to be etched off of the Claret Jug.

As a former pro golfer, I know that when you hit your ball into the water, it’s a significant mental challenge to get over the misstep and keep your emotions from negatively impacting your next shot. Your financial life is a lot like golf, especially in the sense that mistakes tend to build upon each other and you can soon find yourself in a deeper hole than you thought was possible.

After a poor financial decision, we sometimes allow the loss to influence our next choice in a negative way. A friend of mine lost a lot of money after the financial crisis of 2008-2009 by selling his holdings at the bottom of the market and waiting too long to “get back in,” thereby losing the upside. Knowing he lost out on several hundred thousand dollars, how do you think he responded when an old pal called to pitch him an opportunity to double his money?

Just as Van de Velde allowed his mistakes on the 18th hole of Carnoustie feed on one another, my friend allowed his first mistake to influence his following decisions. He took the bait when pitched a too-good-to-be-true opportunity because he wanted to make up for his previous error. After five years, he still hasn’t seen his principal investment recover and likely never will, leaving him still further in the hole.

To avoid compounding mistakes, it’s important to first determine the ultimate purpose your money is supposed to serve in your life. Otherwise, you may be left with chasing arbitrary numbers and attempting to maximize returns without regard for the risks you’ve taken to achieve them. Your best chance to win the financial equivalent of the Claret Jug isn’t to hit the jackpot on a stock pick or real estate investment. Rather, it’s to first determine your long-term financial goals, then follow a comprehensive plan outlining the savings rate, risk and return required to achieve them. No more, no less.

The more you grasp of what is required to achieve your goals, not only are financial mistakes less likely to happen, but you’ll have something on which to re-center if they do.

If you haven’t already, perhaps it’s time to talk with a fiduciary advisor who can help you come up with a plan to achieve your ultimate goals and prevent a future where compounding mistakes can derail your financial life (or lose a British Open).

Once you have a solid idea of what’s needed for success and a plan in place to get you there, let your advisor help you avert the mistakes that will get your name etched out of your financial “Claret Jug.”


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The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2015, The BAM ALLIANCE

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Kyle Moore is an Associate Financial Planner at Pitzl Financial. It is his goal to help clients wade through and make sense of the overwhelming amount of financial information available today. He is passionate about communicating Pitzl’s investment philosophy and searching for planning opportunities in the unique situation of each client.

Kyle has a bachelor’s degree from Northwestern University in Evanston, Illinois. While attending Northwestern, he was a member of the Varsity Golf team where he earned honors as an Academic All-American and Academic All-Big Ten selection.

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