Of Tennis and Investing
If anyone had watched the BNP Paribas WTA Finals match two days ago would have saw one of the most intense matches so far during the year-end’s Women’s Tennis Championship 2014. No. 8 seed Caroline Wozniacki defeated No. 2 seed Maria Sharapova in an enduring 3 hours match with a score 6-7 (4-7), 7-6 (7-5), 2-6.
Investing does take on very similar characteristics to tennis; having patience, a strong mental endurance and discipline are key to be successful. There are two ways to win in tennis. Either you aggressively hit winners, thereby creating forced errors for your opponents or simply limiting your unforced errors by consistently returning the ball. An unforced error is basically making a mistake due to hitting the ball incorrectly, having a lack of precision or just plain unlucky. In a beginner’s game of tennis, a match can be easily won by playing defensive, reducing such errors in the hope your opponent commits more themselves. Investors too can consistently produce good returns by limiting the downside in their game.
A Well-Diversified Portfolio
Having a well-diversified portfolio reduces human errors or downside risks owed to incorrect estimations, being too overconfident on stock calls or plain bad luck. With innovation advancing so rapidly, industries can easily be disrupted by technology; an unforeseen fraud committed by senior managers could leave shareholders helpless. The old adage of “focus on the downside and the upside takes care of itself” quoted by Warren Buffett can never be more true in investing.
Patience is Key
Time is the friend of the investor. An investment would offer a higher chance of solid returns if allowed for the compounding effect to take place. Of course, there are periods of volatility over the short-term; like the proverbial amateur tennis player patiently waiting for his opponent to commit an unforced error, investors would do well if exercised that bit of patience.
Value in Action There are different approaches to investing and there is no one right way to it. Similar to beginner’s tennis, we can win at our game by being patient, disciplined in sticking to our investment strategy and constantly focusing on potential risks inherent in our portfolio. Game. Set. Match.
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All views and opinions articulated in the article were expressed in Willie’s personal capacity and do not in any way represent those of his employer and other related entities. Willie does not own any shares in the companies mentioned above
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