How Goalkeepers and Investors are very similar?

Russia 2018 was hailed as a huge success. Moody’s estimated the World Cup would boost Russia’s GDP by $26–$30.8 billion between 2013 and 2023.

One of the more notable statistics from Russia 2018 was the fact that there were 22 penalties scored, considerably more than in any previous World Cup. Watching some of the action reminded me that investors often make short-term decisions. So, is there a link between how investors and goalkeepers behave when making decisions under pressure?

Many goalkeepers, not unlike investors, have an ‘action bias’.

This meaning an urge to catch the latest investment trend, such as bitcoin or blockchain, runs deep. A 2007 study of 286 penalty kicks found that players shoot almost 29% down the middle—about the same as to the left or right. The study found that the goalkeeper has a 33pc chance of saving the penalty if choosing to remain in the centre. However, 96pc of goalkeepers chose to dive to the left or right, eschewing the option to stay in the middle.

Investors, just like goalkeepers, see action as a positive thing. In today’s world of 24-hour information and soundbites, it seems that being ‘active’ is part of who we are.

Ned Davis research shows investors now hold equities for much shorter periods than before. Over the last 90 years, the average holding period of individual equities has declined from eight years to approximately eight months as of the end of 2016. The need for action also extends to investment fund managers.

A recent study* by the University of Ontario shows that frequent changes to a portfolio by a fund manager tend to reduce past fund performance. The study suggests that the frequent churning of a portfolio is value destroying for investors and results in poorer performance than those fund managers who stick with their investments.

The global stock market (MSCI World) has increased by 1,860% since 1970. If you tried to identify the market troughs during this period, and as a result missed the top 10 performing months due to poor ‘market timing’, your investment return would have reduced by 66%.

Sometimes it pays to be inactive, and to “stay the course” with your investments. The key is to stay invested.

*Portfolio Turnover Activity and Mutual Fund Performance

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