(22-Nov-22) Some say football, some say soccer, and investments go block-a!

As we welcome the start of the biggest sporting event in the world, we thought it would be interesting to highlight the similarities between preparing for a World Cup and investing towards your long-term goals. When we initially started this exercise, we presumed that finding common ground would be somewhat forced; turns out, there are quite a few similarities!

Let’s start with the first one: planning. In football, reaching your goal (don’t mind our pun) requires a decent amount of preparation. Understanding the strengths and weaknesses of your team and the opposing one, as well as forging a playing style that converts individual attributes into a cohesive team performance is essential. 

As an investor, this translates into identifying what your ultimate money goals are, and how you can best optimise your resources to achieve them. This can come in the form of budgeting (think 50/30/20 rule), capital reallocation (can you further optimise your current investments?), and understanding your overall risk appetite (what types of investments are you contributing to, and how does each serve your ultimate goal?). 

Part of properly assessing your football team has a lot to do with picking individuals who complement each other well. From an investment point of view, this is referred to as diversification. Regardless of whether you find yourself in a bull or bear market, you’d want to have a portfolio that allows for exposure to uncorrelated (or negatively correlated) markets, in order for you to benefit from different trends in the long term. For instance, only picking on-the-ball technically gifted players might not be the best approach against a team renowned to score from headers or set pieces. You’ll need a good mix of solid aerial challenges (your defensive component), and a lethal counter-attacking menace (your growth element). 

Second, what differentiates champions from the rest, more often than not, is the ability to be proactive. Whether unexpected changes are happening on a macro level (opponent changing their playing style), or from team-related developments (red card or injury), adopting a fluid, flexible, and effective style is crucial under pressure. 

Let’s put on our investor hat for a second: 2022 is proof that no investment strategy is a guaranteed short term success and there’s no evergreen “in and out” approach. This is where a core-satellite strategy would add value: build a passive, diversified, long-term focused core, alongside a flexible active component, which will allow you to efficiently tune your overall risk exposure. 

Third, keeping your emotions in check is at the heart of any successful strategy. What would be the point of planning, undergoing due diligence, and building a flexible gameplan, if you’re just going to throw it all out the window when things start to heat up? A few instances can include Zidane’s infamous red card in 2006, or Roberto Baggio’s penalty miss in 1994, both of which cost their country an extra star on its jersey. Controlling your feelings and your reactions is as crucial as planning for your actions. 

In times of uncertainty, taking the emotional route has proven to have biases, which have seldom ended favourably. Let’s take a penalty situation: looking into statistical data, a goalie has a 33% chance of saving a penalty if they stood their ground, compared to a 14% and 13% probability if they dived left or right, respectively. Turns out, keepers tend to make a dive over 90% of the time, in spite of the statistical improbability. 

From an investor point of view, staying in the middle is the equivalent of “time in the market”, while diving would be synonymous with “timing the market”. As we have learnt, and seen over decades, time beats timing. We are wired to find patterns and trends where there are none. While those gut feelings might result in a few wins over a short stretch of time, it is far from being a consistent and dependable approach for progress towards your goals. 

As such, to ensure your team has a good chance of reaching its purpose, it would be wise to partner with a professional manager. One whose sole focus is to ensure that your resources are deployed properly, regardless of the obstacles and hiccups you’ll face in the process. This manager (read: advisor) would empower you to develop a well-purposed plan, implement transitions and different iterations as seen fit during the process, and avoid rash and emotionally driven reactions to ensure that you are on track to achieve your goals. 

May the best team win!