What does it mean to be successful in investing? Is it only about making money? How can sports help us find the answer?
Whether you invest your money yourself or you do it professionally on behalf of your clients; the most critical question you should be asking yourself is what success means to you.
The first and the most straightforward answer that comes to mind is the profit you make. It is hard not to agree with that, but there are many more essential and not so obvious aspects as well. I find there are surprisingly many similarities with sports coaching here.
Imagine a football game. You are the coach. The game ends, and your team lost. The press quickly jumps to the conclusion that the performance of the team was disastrous, and the team management should consider replacing the coach soon.
Now, you as a coach could easily accept that narrative and start blaming yourself or maybe even worse – your players. But is that really how you should assess the performance of your team? Is the final result all that matters?
For instance, take the example of Pep Guardiola – one of the greatest coaches football has ever seen. He won the most prestigious titles in this sport numerous times. And what does he do after winning a game? Celebrate? Maybe briefly. But then he immediately sits down with his team and analyzes what mistakes they have made!
If it’s not only the game’s result that matters what other things are relevant? You could start by asking yourself a few more questions:
Have you learned anything? What were the mistakes you will learn from?
How is that win/loss contributing to the longer-term goal?
Have you come up with any new ideas for the future (new tactics, new solutions, etc.)
Have you learned anything new about your players or yourself (i.e. how are they coping with stress? are you thinking rationally when emotions are boiling?)
Have you enjoyed the game?
Were the spirits high in your team?
Have your players showed the values that you support (e.g. commitment, bravery, etc.)?
Have you treated your competitor respectfully and played fair?
You can say that sport and financial markets do not have much in common. Yet, there are a few substantial similarities. In both areas, you can measure the outcomes very easily. In both skills, talent and hard work are essential. In both, the performance also depends greatly on human psychology and emotions. And in both the result depends to some extent on luck (probably more so in finance than in sport). But what is more important – you can achieve long term success only by perseverance and constant improvement.
I am managing funds, and I’m making hundreds of investment decisions during the year. All of them sum up to my year-end performance which is always compared against my peers or my objectives. I have observed it is very easy to fall into the trap of assessing my performance by individual trades’ profit or loss. And what is worse it is very easy to have those small wins or losses impact your mood or even self-confidence. I had to learn the hard way over many years to build mental and emotional resilience to the swings of my portfolio performance. It is a crucial skill if the game you are playing is long term improvement rather than short term gains.
I believe that if you keep learning, be open-minded and curious, keep expanding your knowledge, improve skills and your process, the long term performance will be the result of that. But it is not the goal in itself.
There is also another aspect of how you can measure your personal success both in sports and in finance. The obvious one is the profits you made on your portfolio or the goals you scored during the season. But the less obvious one is how did you achieve that. Did you enjoy the journey?
It’s almost like running a marathon. You train for it for a long time. Suppose you did achieve the time you were aiming for. That’s a success, right? But will you remember it well if you didn’t enjoy training? Have you become a better person as a result of that marathon? Will you be eager and enthusiastic to do it again?
I’m not trying to say that investors should not be assessed based on their performance. But there is much more to the performance than short term results. If anything, when evaluating a sports coach or a portfolio manager/individual investor, you should use long term metrics, not short term.
Apart from reaching your long term objectives, it is crucial that you help your clients reach their own objectives. The best way you can do it is by delivering performance (ideally by taking as much risk as your clients can tolerate). However, as the trend with ESG (Environmental, Social and Governance) investing shows, investors these days tend to look for something more than just the profits. They want to know that their money is invested in line with their ethical and ideological beliefs.
The other thing which for me as a professional investor is vital to consider is how I contribute to increasing an understanding of the markets I operate in. If I can help my clients better navigate an increasingly complex world of finance that would be an achievement I would be proud of.
And lastly, but very importantly, I need to enjoy what I am doing personally. As long as I feel that I’m learning and feeling good about my work, I know I am in the right spot – I’m winning.