How to Win by Not Losing
Trevor Gunter, CFP®
Earlier this summer, I was fortunate to check-off a major bucket list item and travel to Paris with my family for the 2024 Olympics. We saw a wide range of events and countless world class athletes, but no event was more impactful than the semi-final tennis match between Rafael Nadal and Novak Djokovic. Two of the G.O.A.T.s, playing on the hallowed red clay courts of Roland Garros for the chance at an Olympic medal - it was special to see and has left me with an increased appreciation for the sport of tennis.
(Photo taken by my brother-in-law, Aidan Busch)
Since returning to the US, I've paid closer attention to the US Open than I typically would. I also re-watched many of the most renowned matches of the modern age, including the 2008 Wimbledon matchup between Roger Federer and Rafael Nadal. Many would consider this the greatest tennis match of all time and for good reason. Outside of the obvious star power, the match was closely contested and included multiple tie breakers over the course of 4 hours and 48 minutes of play. In the end, Nadal came out on top, having won 209 points compared to Federer's 204. However, Nadal’s victory stands out because of how he won. In many ways, Federer actually played the better match. Federer hit more aces, more winners, and faster serves. Yet he failed to capture the victory, all thanks to one key metric - unforced errors. An unforced error is a mistake that a player makes on their own, rather than one that is forced by their opponent. Federer made twice as many mistakes as Nadal, and it cost him the match. There are probably many life lessons to be learned from this analogy, but in regard to personal finance and investing, the application is simple: it can be more important to avoid the pitfalls of unforced errors than to have high octane winners. You don't have to pick the next hot stock to be victorious in your finances, but there are some common unforced errors that it is critical to avoid. Some examples include:
1. Selling out of investments when the market is down:
Many investors panic and sell their investments when the market is experiencing a downturn. This is often driven by fear and the desire to "cut losses." However, by selling during a dip, you lock in your losses and miss out on potential gains when the market rebounds. Historically, markets recover over time, so staying invested and riding out the volatility can often lead to better long-term outcomes.
2. Having an overly concentrated position in any one asset:
Placing a significant portion of your portfolio in any single investment can be incredibly risky. Even if a company seems stable, unforeseen events—such as regulatory changes, market downturns, or corporate scandals—can cause its value to plummet. Diversification, or spreading your investments across different sectors and asset classes, reduces risk and increases the likelihood of achieving steady returns.
3. Not understanding the risks of investments you're making:
Every investment carries some level of risk, whether it's the volatility of stocks, the credit risk of bonds, or the potential for loss in alternative investments like cryptocurrencies or private equity. It's crucial to understand the specific risks associated with each type of investment before committing your dollars. Failing to do so can lead to unexpected losses and financial setbacks.
4. Staying in cash:
While holding cash can provide a sense of security, it also means missing out on potential growth opportunities. Over the long term, inflation erodes the purchasing power of cash, meaning that your money will be worth less in the future. By staying in cash, you may be sacrificing the potential returns that could be gained by investing in assets that have historically outpaced inflation, such as stocks and bonds.
Just like in tennis, where avoiding unforced errors can be the key to winning a match, navigating your financial journey successfully often comes down to steering clear of these common mistakes. It's not always about hitting the most winners or making the flashiest investments; financial success starts with being mindful of risks and maintaining discipline even in challenging moments. By resisting the urge to sell in a panic, diversifying your investments, thoroughly understanding the risks you're taking on, and putting your money to work rather than leaving it idle in cash, you can avoid the "unforced errors" that derail many investors. Remember, success in both tennis and investing is often less about brilliance and more about consistency, patience, and keeping your unforced errors to a minimum.
The opinions expressed are those of PYAW’s Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed.
PYA Waltman Capital, LLC (“PYAW”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about PYAW’s investment advisory services can be found in its Form ADV Part 2, which is available upon request. PYA-24-37
