Soccer And Your Portfolio

Aaron Hodson Jul 12, 2014

Fund companies extol the virtues of dollar-cost-averaging, but they still get their fees, regardless of market direction. You are the one that needs the courage to go against the crowd.

Most investors, when faced with a market crisis, or simply, a crisis of confidence, feel they must ‘do something, do anything!” The feeling of insecurity and lack of control is strong, and your portfolio is suffering. Surely there is something you can do to help your portfolio.

In times like these, though, maybe you should consider what happens in soccer (especially relevant now with the 2014 World Cup Final underway). In an interesting 2009 study, researchers studied penalty kicks in thousands of professional soccer games. Here is what was noted: In attempting to stop the penalty kick, goalkeepers jump to the right or left 94% of the time. In doing this, they guess correctly only about 40% of the time (i.e. jump left, shot placed left).

However, even when they guess correctly, they only stop 25-30% of the shots. The most intriguing part of the analyses is that when goal keepers remain in the center of the goal and the shot is placed in the center, they make the save 60% of the time.

Given that about 30% of penalty kicks are placed in the center third of the goal, remaining stationary in the center of the goal increases the keepers chances of stopping the shot from about 13% to more than 33%. Thus, the best strategy for goalkeepers is to remain in the center of the goal during the penalty kick. Thus the idea that keepers should jump left or right and hope they guess correctly is not supported by these numbers. (Bar-Eli M, Azar OH (2009) Penalty kicks in soccer: an empirical analysis of shooting strategies and goalkeepers preferences. Soccer & Society, 10:183-191).

How is this possibly related to the stock market? Well, like a goalie in soccer, in portfolio management, it is often best, during turbulent markets, to stay in the centre and do nothing. Sitting put on your dividend stocks, not gambling to try and time the bottom, and not panicking will often serve your portfolio better than actively ‘guessing’ which way the market is going to go next. Doing nothing, though, is extremely hard for individual investors. For mutual fund and professional managers, it is even harder. How do you justify your 2.5% management fee is you are, um, not doing anything?

Imagine a fund manager explaining to their clients, that, despite the stock market world imploding around them, they are just sitting on the hands waiting for the volatility to pass? How is that statement going to go over with clients who are losing money (and still paying fees), or with the boss, who wants to bring more money in the door? But it is OK to do nothing. Most investors trade too much, and pay too much in fees and taxes because of it. Some of the investors who fared the best in the 2008/2009 financial crises were those that became paralyzed with fear, and did nothing by default. They saw names such as Baytex (BTE on TSX) drop to $10, and subsequently recover to $45, all the while still earning dividends. So while the stock market implodes all around you this summer, sit back and do what is right for your portfolio—do nothing and watch some soccer games.




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