I watched the 2016 French Open men’s final, and it was clear that Djokovic was the better player on Sunday.
I was pulling for Murray.
Each player made some amazing shots, but as the match wore on, it seemed – based on my amateur analysis – that Djokovic was making fewer errors.
In the game of tennis, there are shots referred to as “winners.” These shots are typically out of the reach of your opponent or can’t be returned. If you hit a winner, you win a point.
On the other hand, there are also “unforced errors.” Unforced errors are a service or return shot that cannot be attributed to any factor other than poor judgement and execution by the player. If you make an unforced error, you typically lose a point.
The game of tennis has many things in common with long-term investing. This analogy was first highlighted by Charles Ellis in his book, Winning the Loser’s Game, originally published in 1998. Here’s a PDF excerpt from the book, courtesy of the CFA Institute.
To summarize the Ellis book’s thoughts on tennis and investing, here’s a great quote from Eric Falkenstein:
“In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.“
I do however take issue with part of Falkenstein’s quote above. He provides advice based on whether you’re a “beginner” or an “expert.”
With the exception of a very small group of folks who might include Warren Buffett, I’m not sure there are a bunch of investors who could confidently be classified as having achieved expert status. Even investing pros often make mistakes that could be avoided.
So I would alter the quote above as follows:
“. . . all investors should focus on avoiding mistakes.”
However this is easier said than done.
And it goes against our natural instincts to “win” even when our efforts can lead to more harm than good. Especially when it comes to investing.
As I’ve said and written many times before, often the best advice I can offer is “don’t just do something, stand there.”
And if it weren’t already a challenge to fight our own instincts to tinker and improve and look for advantages, many financial advisors make this part of their “pitch” to you as an investor. They will often use industry jargon along with statistics and charts to show you how they would have avoided troublesome markets in the past.
But don’t be fooled. And don’t be misled.
Whether you or your financial advisor have been at it for 30, 40 or more years, I’m skeptical that you or your advisor have achieved expert status. And as a result, the best strategy is to avoid unforced investing errors instead of attempting to find investing winners.
This strategy works on the red clay of Roland Garros, and it works equally as well as you invest to support your long-term goals and aspirations.