Why Grand Finals are a terrible investing analogy

Go the Chooks in 2024! Too early? Never!

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Me, just now: "I should sit down and write an article using last weekend's Grand Finals as inspiration".

But, well, I'm not going to.

Frankly, how do you do justice to one of the great Rugby League Grand Finals?

And, well, how do you write nice things about Collingwood? (Oh, settle down you Pies fans… I'm kidding!)

I mean, sport makes for nice metaphors. Wins and losses. Perseverance. Teamwork. The elation of victory.

And I'm a sports nut (though the less said about my Roosters, Swans and Wallabies the better, this year).

But you know, it kinda breaks down as a metaphor for investing.

In fact, it can be downright counterproductive.

Because sport – professional sport, at least, is about one winner and 16 or 17 'losing' teams.

It's about the one moment of brilliance: that one kick, run or tackle that turns the game.

The investing metaphor would be the Hail Mary punt on some speculative mining company selling at 2c per share. Except, well…. Almost all of those turn out badly.

See, 'winning' at investing isn't actually about climbing to the top of that greasy pole; defying expectations, beating all-comers, and soaking in the adulation from all around you.

Investing isn't 'death or glory'.

And coming second doesn't make you the 'first loser'.

Because sport is a zero-sum game.

If you win, someone else loses. If you lose, someone else wins.

But investing isn't zero-sum.

Far from it.

Investing actually has what the boffins call a 'positive expected outcome'.

Quality assets actually increase in value, over time.

Over the last century, the average annual return is around 9%, give or take.

Not the winning return. Not the top 10%. Not even the top 25%.

The average.

Sure, you could (and, if you're interested and capable, you probably should) try to do better than average.

If you do, you'll be better off for it.

But even a below-average result is a very good outcome.

Of course I'd rather compound at 10% per annum rather than 7%.

But that 7% return would still make for a very, very good financial outcome over a few decades.

Now, I love my sport.

Almost as much as I love a sporting analogy.

But this time around, I'm going to ask you to put them away.

Because they're going to lead you up the proverbial garden path.

Please, stop trying to 'win' at investing.

Stop trying to 'beat' your brother-in-law.

Stop trying to throw the 'Hail Mary' pass.

Because I'll tell you something else.

Study after study tells us that doing well, over the long term, doesn't require 'winning' all the time.

In fact, some of the top-performing investors only do moderately well, in the short term.


Isn't that an oxymoron?

Nope. Not even close.

Because returns compound over long periods of time, the successful investors don't try to chase trends, or big winners.

They don't day-trade lithium stocks, so they won't 'win' when lithium goes on a tear.

They didn't try to 'pick' the cannabis rise and fall.

They didn't play silly-buggers during COVID.

Instead, they did 'okay' during each of those times.

But, as fads came and went, they hung around.

They were – you guessed it – Aesop's tortoise, not his hare.

A footy team that regularly makes the finals, but rarely wins a Premiership or a Flag is roundly considered a disappointment.

"They're never quite good enough", the commentators say.


"Falling short"

But that's why you shouldn't try to invest the way football clubs are run.

Fans will accept years in the wilderness for just one year of Premiership glory.

But if you invest like that, you'll have one great year… and then risk a lot of financial misery.

The good thing?

If you're a sports nut, you get to have your death-or-glory fix on the weekend.

So that, during the week, you can focus on doing moderately well in the short term, and extraordinarily well over the long term by investing sensibly, and compounding your way to financial greatness.

No, that's not as exciting. Which is precisely as it should be. Just like Aesop's tortoise.

And go the Chooks in 2024! Too early? Never!

Fool on!

Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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