7 Lessons the World Cup Offers on the Stock Market

bigdog posted on 06/28/10 at 11:19 AM

I loved this WSJ article by Brett Arends, 7 Lessons the World Cup Offers on the Stock Market. I hadn't realized it, but the parallels between winning at each are uncanny:

  • Darling teams lose in upsets all the time - why are we so surprised when it happens? Similarly, no "gold-chip" stock is totally safe from a tumble.
  • Teams following the quick-goal strategy get trounced by teams like the Brazilians, who wait for just the right moment to act. I love how Arends likens Warren Buffett to soccer great Pele on this point: "Warren Buffett–possibly the Pele of investment–once called investing an efficient mechanism for transferring money from the active to the patient."
  • The critical role of defense and risk management. Every trader likes to score big - that's the sexy part of investing. The less exciting part is defense, or managing your risk exposure intelligently, so you can live to fight (and trade) another day. 
  • Globalism matters, in soccer and in investing or trading. Why trade only U.S. stocks when two-thirds of the world's trading activity happens outside of the U.S. sphere? 

What other money-lessons can you glean from World Cup action? I'm trying to think of the investing-equivalent of faking a penalty - maybe holding onto a losing stock position forever? The takeaway there is pretty clear: stop your groaning, get up off the field, and get back into the game!

[image: US v Algeria World Cup Match by jasonwhat on Flickr]

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Posted by bigdog on 06/28/10 at 11:19 AM

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Alcoholresearch_thumb Brokerage Account

spshapiro posted June 29, 2010 (10:15AM)

Don,  I’ve been writing for a while about ways to take a defense view while investing.  In fact, when it comes to sport I can’t think of one where you can consistently win with a ‘run and gun’.  As I wrote yesterday, I don’t have to say these things to those who have lived through a setback or two.  Because if you have, either you’ve pulled in your horns and gone home or you have learned some defensive strategies.  The thing that concerns me is that as a brokerage it seems that there is a heavy proportion of fairly new investors here.  It is just these people who tend to get caught up in the “big score” mentality. I realize that it is hard to have a long term perspective when your history is measured in months, but what really matters is not whether you are up at the end of the month, but whether your portfolio is worth more a year from today than it is now.  Or better, that it is worth appreciably more five years from today.

Today is actually a good day to be writing this.  Those who are sitting by their computer chewing their nails, are those who did little to prepare.  Downdrafts happen, always happen.  Most often happen, when you don’t want them to happen.  My portfolio will undoubtedly be worth less at the end of this day.  I will record it, as I record everyday, but I need not check my leaderboard because I’ll be on it.  There is only one member in my contest.
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Don_1_thumb TradeKing Staff Member

bigdog posted June 29, 2010 (04:06PM)

So true, Spshapiro – I can see that final line of your comment becoming a mantra, and a darn smart one for traders. It’s true that traders have to walk a fine line. On the one hand, we’re in this game because we want to take active charge of our own financial futures, and frankly also because active investing can be a lot of fun. But on the other hand, shooting first and aiming later is an all-too-common byproduct of too much enthusiasm, and that riskiness can cost you big-time. 

Another mantra I like I learned from an old mentor of mine: smart investing is not as much about winning big as it is about losing only a little. If you can score repeated small gains and keep your losses to a minimum, that’s how to win the investing game for the long-term.
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Nophotosm Trader Network Account

S1X45NE6DE posted January 28, 2011 (03:52AM)

This is so unique comparison and effective too. Its all about waiting for the right time and in the process create opportunities.
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