Wrestling Ring

The WWE has laid the smackdown on many short sellers waiting for the market to turn heel. Shares of the pro wrestling federation are up over 160% this year, thanks in part to a pair of network deals that will keep Monday Night Raw on the USA Network and bring Smackdown Live to FOX. The move positions WWE and its shareholders for continued financial success.

For loyal viewers, who tune in each week and some weekends for PPVs, the recent cash windfall doesn’t mean all that much. It won’t make them any richer or poorer.

Instead, viewers can gain from simply watching the product. As it turns out, wrestling teaches us a valuable lesson about rebalancing—that together with a diversified portfolio and long-term outlook—can improve your financial health.

First a Definition 

Rebalancing, by definition, involves the periodic buying and selling of assets in a portfolio to maintain the desired asset allocation. A recent graduate, for example, may put money in a portfolio with 90% stocks and 10% bonds to take advantage of long-term equity growth. As each asset changes in value, the distribution of stocks and bonds will deviate from the target allocation. Sure, investors can allow portfolio weights to constantly drift in either direction, but in the event of a big market correction, being overweight stocks could cause large losses. Taking regular actions to reduce this movement can help manage risk and keep you on track to reach your goals. Common time frames for rebalancing include monthly, quarterly, and bi-annually.    

Back to the Ring

Pro wrestling embodies the constant struggle between good, faces vying for fan’s attention, and evil, heels looking to disrupt the status quo. The two opposing sides face off week in, week out in matches that can go either way, but more often than not, fan favorites—heel or face— will go over to build momentum. If this happens too often, the storyline becomes stale and even predictable. Take the Shield’s rise to prominence. The hounds of justice were rocketed to the top after debuting in 2012, beating wrestling legends like Evolution and rising stars in Daniel Bryan over a short period of time.

By 2014, The Shield was rising higher and faster than AMD in the past 3 months—shares of the chipmaker jumped over 100% since June.  So, when Rollins, Reigns, and Ambrose came to the ring after Payback, which pitted them against Evolution, fans expected more of the same. Some initial bragging about their victory the previous night and then some setup for the next feud. Yet, what happened shocked everyone in wrestling. With a swift chair shot, Seth Rollin had turned his back on his Shield brethren and millions of fans in the WWE universe. The chair shot came without any warning, as do most stock market crashes.

By regularly rebalancing your expectations, as a fan or an investor, you can prevent unexpected events from taking a large emotional or monetary toll. Investors easily do this by buying or selling assets, but for wrestling fans, it isn’t so straightforward. One way to avoid getting caught off guard in wrestling is cheer for a stable of heels and faces. That way a major turn, face or heel, doesn’t cause you great distress.

In wrestling and investing, everything eventually comes to an end. It’s best not to fall on the wrong side of this trend, but if you do, prepare ahead.

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