Investment Lessons From The Football Field

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  • 23 Feb 2023

At so many points during a Football tournament, we came across striking re-semblances between football and the stock market. It’s almost as if they were cut from the same cloth! You can judge for yourself here:

1. Team Selection

You may have noticed there is a lot of attention on what team is picked by the manager be-fore every single match. That’s because the manager has to study his own team and the op-ponent’s strengths and weaknesses before announcing his lineup. The same is the case with stock picking. You need to do your research before choosing the right stocks.

Another parallel is with the type of players selected by a football manager. The manager would make a rod for his own back if he decided to field a team of only strikers or defenders. Imagine a match being played with eleven strikers? The team’s balance would be incredibly lopsided. While they may score a hatful of goals, they’ll concede by the dozen. Ditto with stock selection. It’s not a good idea to only pick similar or same-sector stocks all the time. You need to diversify your portfolio to minimize risk.

2. Player's Profile

Players, like stocks, are different from one another. That’s the reason why managers spend copious amounts of time to find the right balance in the team — the energy of the young blood, the calmness of the experienced and the undescribed magic of the great players. Each player serves different needs.

Let’s first take the example of a Cristiano Ronaldo or a Lionel Messi. They are the first pick of a team. That’s because they are legends who have been incredibly consistent over the past few years. For an investor, they are like the stocks of well-established companies who have given high returns over a long period of time.

The next-gen players are a big hit among managers. Blooding youngsters in the team is important for a football manager. That’s because newbies have a point to prove, easy to man-age and have reservoirs of untapped talent, which can only be showcased if he is picked in the team. Remember the previous season’s Monaco team or the vintage 1996 Ajax side or the ‘you’ll-never-win-with-kids’ Manchester United of the mid-90s? The Mbappes, the Kluiverts and the Scholes of the world announced themselves on the big stage because the manager had the confidence to unleash them. However, not all youngsters create a splash, read Freddy Adu and David Bentley. Playing youngsters can backfire for sure. This is where managers take an educated punt — a bit similar to buying stocks in an unknown small-cap company. These stocks either prove to be multi-baggers or sink without trace. Therefore, an educated punt can be taken by studying the company’s business model.

Then, there are players like N'Golo Kante, the lynchpin in the French midfield who quietly goes about his work while flashier players soak up all the attention. For an investor, such a player is similar to a stock that performs on a consistent basis and wishes to stay away from the limelight.

Also, if you think hard, you’d realize there are strong similarities between steady large-caps with defenders, volatile mid-caps with midfielders, and promising small caps with forwards.

3. Tactics Time

The tactics deployed on a football field also has echoes in the world of stocks. The manager selects a line up for his team depending not only on the opponent, but also the strengths of his team.

Historically, the most popular line-ups in the football have been 4-4-2, 4-3-3, 3-5-2. We’ll keep the 4-3-1-2 aside because it’s more recent.

  • 4-4-2 – Balanced: This is a line-up chosen when the manager does not want to take any un-due risk, but also wants to ensure his team plays with some imagination. This is achieved by maintaining a balance between the number of defenders, midfielders and forwards. An inves-tor would employ the same tactic when balancing his portfolio for optimal results: 40% of his money in large-caps, 40% in mid-caps and 20% in small-caps.

  • 4-3-3 - Aggressive: When the manager believes it is time to go all-out to score goals, he de-ploys an aggressive line-up of three forwards and three midfielders, supported by four de-fenders. For this tactic to work, the manager needs to ensure he has picked players with strong attacking ability. Similarly, an investor with a decent risk appetite would invest 40% of his money in large-caps, 30% in mid-caps and the rest in small-caps.

  • 5-3-2 – Defensive: There are times when the manager wants to play safe and not concede goals. That’s why he plays with three central defenders and two full-backs who support the three midfielders and two hardworking strikers upfront. This is similar to someone who wants to take little risk and is happy with stable returns. The preferred portfolio for such investors is packed with defensive large-caps, while the remaining are kept in well-performing mid-caps.

The Bottom Line

To sum up, a football manager is like an alchemist. He has to fuse a bunch of individuals with different strengths and weaknesses. That’s because relying on an individual, like Argentina, is self-inflicting in the long run.

Instead, the manager needs to forge a team that is working hard for one another. Only then will a side be ready for the World Cup.

This strategy should be mirrored in your investment portfolio. You can’t rely on one or two stocks. You need to have a well-balanced portfolio.

So, if you are a football addict, glean valuable lessons from the football field and put it to use when you invest.

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