Over the last four weeks, cricket seems to have been displaced from our collective mindspace by another sporting event, arguably the biggest of them all, the FIFA Football World Cup 2022.
This once-in-four-years event converts existing casual football followers into aficionados, as well as creates football lovers where there were none, while, of course, football fanatics become self-styled experts. In a way, if one were to look at the football calendar through the lens of the market-cycle, this is boom-time.
After all, this is what happens in rising bull markets, right? The experienced beam the “we always knew it” look, the more recent investors think they have unearthed a magic mantra, and the newbies jump onto this runaway train in hordes. Interestingly, the parallels don’t end here.
There are quite a few money lessons that one can draw from sports, and the football World Cup is no different. So, here are a few timely takeaways on how you can manage your money better.
Also read: Just started earning? Zerodha’s Nithin Kamath has this investing advice for you
1. Past performance is only the start-point, not the end
The best 32 teams get together to fight for the ultimate prize, and each team at the beginning is a possible winner. What matters is only how they play in the next four weeks. Similarly, selecting a high-momentum stock or a fund that has done well in the last year doesn’t tell you anything beyond the fact that it has done well recently.
2. Track record is to some extent only past glory, a testimonial of what was, not an assurance of what can be
Germany and Spain came with great expectations, but these expectations were anchored in past glory, not current potential. For their fans, their showing was a disappointment, not a surprise.
At times, big names are just that ― big names. Hence, when it comes to choosing a product, while a big name can add the necessary credibility, it may not guarantee performance. Look beyond and seek better evidence of performance promise.
3. That said, quality and pedigree matter
In seven of eight wins in the Round of 16, the perceived favourite beat the perceived underdog. Punting on the underdog is a low-probability event, and in most cases, the better team wins.
Similarly, while one shouldn’t blindly go by past performance or track record, pedigree matters. The due diligence that you undertake to select an investment has to necessarily meet minimum standards. Also, understanding the risks are important, else what looks like an investment may be more of a speculation.
4. In the mid- and small-cap space, the ability to pick the right one matters, since many fall by the wayside
In the league stage, many smaller teams looked promising. Japan, South Korea, USA, Australia, and Morocco, all had periods of performance that made them look potential qualifiers. But only Morocco did.
Similarly, choosing a small-cap needs that added bit of skill in being able to identify the future diamond in the coal mine. For every success story, there is a long list of failures, and running after the next big story usually ends in disappointment, and even worse, loss of capital.
5. In the short term, even the best can underperform
In the early games, Argentina lost to second-lowest-ranked Saudi Arabia, and France lost to less-fancied Tunisia. Both teams shrugged off these defeats, and bounced back, to enter the finals, ready to fight for the ultimate prize.
Similarly, the best investments can have blips in terms of performance and this is something you must be prepared for. Build your conviction on diligent research, and once you do that, keep the faith, through the volatility that will necessarily happen.
6. Even the best-selected investment may end up failing
Having the best names does not mean you have a winning team. Belgium’s players are touted as the “golden generation”. They have been ranked Number 1 for many years, but for all this, their trophy cupboard is bare.
Similarly, there is a limit to potential, if performance doesn’t come. It may have been the most diligently researched, but there are times when tough calls need to be taken. They may be because of prolonged underperformance, and at times it can be because something has changed in the original thesis. Whatever it is, forever holding on to losers is not healthy investment behaviour.
7. The investment thesis and style need to be appropriate to your need
Every team has a certain style consistent with time, eg. Brazil’s passing-based attacking style, Germany’s efficient control of space, and Spain’s pleasing-to-the-eye passing and possession, among others. Trying to change can lead to problems in performance, not to forget disapproval from fans. Eg. In 2010, Bazil adopted a more defensive style, and the result was an early exit from the tournament, plus angry fans.
Similarly, when it comes to choosing an investment, it is important to know what the philosophy is, and what it means to you as an investor. Some examples are ― stocks and funds can be either growth- or value-focused, cyclical or defensive, momentum- or valuation-driven, sectoral/thematic or diversified, and so on.
What this means to you could be lower vs higher volatility, underperformance in rising markets vs higher downsides in falling markets, and so on. You need to know what your risk thresholds are so that you can select investments that match it.
8. Every investor has unique needs and accordingly the investments that are picked need to be appropriate
Every manager has a strategy, and the team is picked that best suits that strategy. And every player has strengths and weaknesses, and accordingly has a defined role to play in the team.
Similarly, it’s important to have an overall picture of what your needs are, and then identify the right asset-classes and investments that meet them. One common mistake that people make is building portfolios that are not need-appropriate. A well-made financial plan will help you determine what is right for you and whether your existing investments make the cut.
9. The biggest name does not mean big gains
The team with the biggest stars does not mean that their delivery is the best. Portugal comes to mind, as does Belgium. On the other hand, Japan and Morocco come to mind, in terms of their ability to make the best of the talent available and regularly punch above their weight.
Similarly, following the most popular finfluencers or using a large wealth management firm does not automatically mean that the advice you get will be the best suited to you. Find someone who values you, and can add significant value to you, and comes with strong references.
10. Have the right investment horizon, focus, and behaviour to back it
Before this tournament, there was a lot of talk about the likely challenges. Issues like location (Qatar), time of the year (December vs June), Qatar’s human rights record etc, were thought would impact the result. In the end, this has been a very successful and enjoyable tournament.
Similarly, when it comes to your investments, in the long term, external factors such as macros, expert views and timing don’t matter. Just as the team on the field that plays consistently over the entire tournament and adapts better to the headwinds wins, the investor who builds the right plan, selects the right investments, and has the right long-term focus will end up achieving investment success.
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