With the World Cup on every day for the next month I’ve had to get up to snuff on my soccer, errr futbol. And as I watch the games unfold I realize just how many parallels there are between futbol and investing. For instance:
- You can be a total fraud and get away with it. Just like on Wall Street, you can be a perennial underperformer, sell products that don’t deliver or even blow up funds time and time again and people will still think you have something legitimate going on. Likewise, in the World Cup you can apparently just fall over if you’re close to an opponent and the referee will keep rewarding your fraudulent performance with free kicks. The lesson of course is to be aware of frauds. They’re out there and they can be avoided if you’re careful.
- You don’t have to win to advance. You can tie in soccer. That’s weird for Americans, but it’s an important lesson in the world of investing. You don’t have to beat everyone else to succeed. We’re continually told that we have to “beat the market”, but that’s totally false. We all have unique financial goals and needs and “beating the market” isn’t necessarily one of them. Most of us just need to generate positive risk adjusted returns while beating inflation and reducing our risk of permanent loss. And you don’t have to beat everyone in the world to achieve those goals.
- The game is a series of sprints inside of a marathon. We’re often told that investing is a marathon. You know, you follow the green line to your number or you “buy and hold” “stocks for the long run”. But the reality is that our lives are a series of events and our financial lives need to be prepared for not only the finish line, but also the events inbetween. Soccer might be one 90 minute match, but it’s actually a series of sprints inside of that longer match. Much like investing is a prepared around a series of personal financial events within one longer time frame.
- Diversification is the only free lunch. We’ve already seen some of the biggest stars get injured or simply fail to produce in this year’s World Cup matches. But that hasn’t necessarily spelled doom for those teams. Soccer is a great team sport in this regard. One man doesn’t win matches. You need a diverse team with diverse skills with players who can offset one another and pick each other up when someone else is down. Investing is no different. You don’t bet on one asset. You spread your portfolio out, create non-correlation, and protect the portfolio in ways that ensure that when your trusted assets fail, they don’t torpedo the sum of the parts.
- It’s a macro world and we’re just living in it. The World Cup is not only reminding me how bad my geography is, but it’s reminding me that we live in a macro world. The biggest nations aren’t necessarily the most dominant. And the nations who are often expected to dominate end up flopping. In this increasingly interconnected macro world the playing field is not only becoming larger, but it’s becoming increasingly even. And if you want to succeed in this new macro world you have to understand how its components all come together.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.