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The risks of amateurs attempting to win like professionals
Many of you replied to last week’s email with a variety of German expressions, some of which had some interesting stories surrounding them.
While I had to use Google to translate each and every one of them, it was a nice treat.
I played a lot of tennis growing up. 🎾 I was good, but never great.
In college I taught kids’ tennis lessons part-time to earn money.
But I haven’t played much in years…
So why am I writing about tennis?
Because tennis can teach us a valuable lesson about money.
Whether you’re tennis player or not, I have a question for you:
What’s the most important shot in tennis?
Is it a blistering serve resulting in an Ace?
Or a perfectly placed groundstroke out of your opponent’s reach?
How about a dropshot with just the right touch?
Hold that thought… I’ll share my perspective on the most important shot in a moment.
Broadly speaking there are two types of tennis players.
Amateurs and professionals.
By the time you’re reading this, some of the world’s top professionals will have just finished competing on the grass courts of Wimbledon.
And while there’s a wide range of talent and capabilities between amateurs and professionals, in many respects they’re each playing a different game.
Sure, they’re each playing tennis.
But their approach to the game is quite different.
Or at least it should be.
Whether on the tennis court or in your portfolio, you have a choice:
You can play to win, or
You can play to avoid losing.
Professional tennis players have the experience, talent, and muscle memory to hit winning shots. Shots that their opponent can’t reach or return.
It’s when amateurs attempt to play tennis like professionals that they can find themselves in a losing situation.
Instead of trying to smash a serve or hit a winner with each and every stroke, most - if not all - amateur tennis players would be MUCH better served by just hitting it back across the net and keeping the ball in play.
Your opponent will likely fall into the trap of trying to hit a “winner” and their mistakes - unforced errors in tennis speak - will increase your chances of success on the court.
In tennis, professionals find success by outplaying their opponent and deliberately trying to win.
Amateurs will find more consistent results on the tennis court simply by focusing on not losing.
Thus the title of Charley’s book: Winning the Loser’s Game.
In Charley’s own words,
Large losses are forever - in investing, in teenage driving, and in fidelity. If you avoid large losses with a strong defense, the winnings will have every opportunity to take care of themselves. And large losses are almost always caused by trying to get too much by taking too much risk.
Contrary to their oft-articulated goal of outperforming the market averages, investment managers are not beating the market: The market is beating them.
If you’d like a summary review of Charley’s great book - which I recommend- check this out from White Coat Investor.
When it comes to tennis or your financial plan, the best strategy isn’t to “win.”
It’s to simply avoid losing. To avoid unforced errors.
One example - among many - is avoiding underperformance risk.
Of course, “winning”and “losing” in the context of your money and your life is something only YOU can determine.
Naturally, I believe a personal financial plan can help with this effort.
Also, avoiding unforced errors extends well beyond just your investment portfolio.
The same concept applies to your:
and much more.
Oh, and the most important shot in tennis?
It’s the shot that simply gets the ball back over the net and keeps you in the game.
Again and again.
Until you win.
By not losing.
Don’t “beat” yourself.
Just because most investors - amateurs AND professionals - regularly make unforced errors with their money doesn’t mean you need to.
What do you think?
Hit reply and share your thoughts.
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Until next Wednesday,