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To win, one must play like a winner.
From parents trying to get their kids to emulate the toppers in their classes to salespeople trying to copy the pitch of their top-performing peers, everyone tries to emulate winners.
This is quite entrenched in investing too.
Investors are forever trying to find out what more successful investors are doing and then copying that.
But does it work
There’s an interesting counterpoint from a well-known investor.
Howard Marks has been a successful fund manager and a good writer on investing.
His writing is mostly in the form memos on investing.
No less than Warren Buffett has said that when a memo from Marks arrives, he drops everything to read it.
In his talk, Marks explained his point by giving an analogy from tennis.
He said top tennis players win by playing a lot of shots that are winners.
A Djokovic or a Murray or a Williams often play shots that few of their opponents can handle, and play such shots with great regularity.
However, amateur players can’t play such shots, except by rare chance.
Marks says watching amateurs makes it clear that for them, the key to winning is to not hit losers, instead of hitting winners.
A good amateur player believes that if he/she can just get the ball over the net and keep that going for 10 or 15 shots, then sooner or later, the opponent will make a mistake.
Amateurs achieve their victories by just managing to do the ordinary thing consistently.
The analogy to investing is clear.
Great investors hit winners.
They generate returns from the unlikeliest of investments because they have the ability to hit winners that others can’t.
Moreover, because investing is a closed activity, you will come across many who will hide their losers and talk only about the occasional winers that they hit by chance.
We should ignore this and instead be the consistent amateur and concentrate on not hitting losers.
What does that mean in investing One of the basic tenets of investing is that avoiding mistakes is more important than making brilliant choices.
Many investors are obsessed with finding the absolute top-performer.
Unless you are a genius and lucky, this doesn’t happen.
What happens is that such investors flit from idea to idea, chasing past performance and buying into yesterday’s winners to spot the ultimate winner.
On the other hand, the ‘avoiding losers’ approach is different.
For mutual fund investors, this involves finding a conservative fund with a good long-term track record and then investing regularly through an SIP for a long (as in years) period.
If the period for which you are investing is a short one (you’ll need the money within months or one to two years), then this means avoiding equity investing altogether, instead of looking for short-term winners.
It also means never getting interested in any sectoral or specialised fund, or anything that is flavour of the day.
Most importantly, it means not stopping one’s SIPs in response to a market decline or a phase of volatility.
It’s much easier to succeed by playing to one’s strengths, than to fail by trying someone else’s.
(The author is CEO, Value Research.)
