Football is life. There are so many lessons we can learn from understanding the beautiful game. Even financial ones.
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Financial Lessons You can Learn from Watching the World Cup
So France won World Cup 2018. World Cup matches are always so unpredictable, and the number of shockers for this edition makes for important reflection in the aftermath of an exhilarating season. Imagine dealing with such surprises on a more frequent basis? That is the reality in the financial world.
This mix of excitement, anxiety, and uncertainty in football matches is not unlike the financial world – no one can perfectly time market moves, nor can we ever expect to make profitable investment decisions all the time. However, a good investment philosophy is a balanced one; one that takes calculated risks and pays dividends in the long run.
Philosophy & Tactics
There is no absolute “right” way to play the beautiful game. Football teams are set up differently in accordance to their strengths (e.g. available players) and external factors (e.g. opposition’s tactics) – so do investment strategies.
Spain popularised the possession-based game, commonly known as the “tiki-taka”, while England plays a direct style, finding the fastest way to the goal. Holland used to boast the concept of “total football” with an all-out attacking approach, while Italy had the most stubborn defense in the past. (Both teams failed to qualify this time2).
The truth is that the best teams are never formed by all defenders or all attackers.
So, for investors, the basic questions are always:
- How safe should our investments be?
- How much liquidity should we hold?
- When should we take a calculated risk?
The answers lie in having a clear financial objective – whether it is wealth preservation, retirement planning or creating a nest fund or education fund for your children.
With a clear goal in mind and an astute evaluation of our current life stage, we can then find the right balance in our portfolio between defenders (low risk, low returns) and attackers (high risk, high returns).
Selecting Your Team
International coaches spend most of their time watching potential players at the club level before calling them up to the national squad, but when you can only pick 23 players, it is not easy to decide between an experienced player or an in-form youth who has no experience on the international stage.
Similarly, when it comes to picking an instrument to invest in, there are various companies who have strong business fundamentals and steady growth. There are also opportunities like tech start-ups who might become the next unicorn and present unexpected returns.
Is there room in your team to make a small speculative bet on the young player who might cause a storm on the international stage?
Quick fact: only Brazil and Italy have won back-to-back World Cup titles1. It’s nearly impossible for a team, even the very best, to win all the time. And that is because things are never constant; strong winds could alter the flight of the ball, and the opposing team could make substitutions and change their tactics.
In the unpredictable market winds, how do we know when to hold onto our investments and ride the storm, or when do we cut our losses and seek better opportunities? One of the biggest benefits of working with a financial consultant is the ability to tap on his/her expertise in making the informed decisions based on research and insights.
Identifying financial investments requires a great amount of research – from understanding business fundamentals and identifying macroeconomic trends to detecting nuances in global politics. Just as managers scout opposition teams to study their tactics, we need to understand the industries and businesses that we invest in.
Brazil, Argentina, or Germany?
These three teams are (or were) the perennial favourites to win the World Cup. Each team is overflowing with incredibly talented players such as Neymar, Messi, and Kroos. However, it is impossible for these players to win games single-handedly for their team all the time – underdogs could easily cause upsets if they are able to stifle them.
Brazil’s wingbacks are known more for their attacking prowess than defending, leaving possible gaps in the wide areas. Argentina might be compelled to rely on Messi and he could find himself double- and even triple-marked most of the time. Germany lacks a traditional forward and if the attacking players do not come up with the goals – they might not have a plan B.
Is your portfolio too reliant on one type of investment? Are you taking on too much risk? Or do you have a well-diversified portfolio that can appropriately withstand specific market changes?
The Mental Game
In many ways, football is a perfect metaphor for financial planning. It’s always easy when we are winning.
The challenge is how do we deal with adversity – when we are two-goals down, what do we do to turn things around and come out tops? After we lose a match, how we learn from it and improve as a team for the next match?
Market movements can be volatile but a financial consultant helps his/her clients to stay on top in the long run.
No manager works alone; he/she builds a staff team with experts in various areas like fitness, technical training, nutrition, psychology etc. Neither should you try to navigate the complex markets alone.