Roger Federer has attributed much of his success in tennis to his ability to stay calm amid chaos. It's a very useful attribute for investors as well.
As any sports fan knows, many famous athletes owe their success as much to their mental strength as their dedication to training, their natural talent or physical resilience. That is particularly true of tennis.
Mental fortitude separates great players from the rest. It helps them to handle pressure, stay focused in high-stakes moments and recover from setbacks. And it’s an equally valuable trait for investors.
There are, in fact, strong similarities between top-class tennis and the financial markets. For a start, both are highly competitive. Because all known information is already reflected in current prices, it’s exceedingly difficult, especially for ordinary investors, to outperform. As William Bernstein wrote in his book, The Four Pillars of Investing: "Trading individual stocks is like playing tennis against an invisible opponent; what the investor doesn't realise is that he's volleying with the Williams sisters."
You win some, you lose some
Another similarity between the markets and professional tennis is that fortunes can change very quickly. You can be looking comfortable, serving for a game at 40-love, but then narrowly lose three points and find yourself struggling to save it. Similarly, markets can rise sharply one day and fall just as far the next, or vice versa. The secret, in the markets as in tennis, is to stay calm and keep a level head.
Take Roger Federer, for example. Federer won 103 singles titles in a career spanning 25 years. It may surprise you to learn, however, that he achieved that extraordinary feat by winning only a little more than half of the points he played, 54 percent of them to be precise. Yet, over time, that slight advantage paid off. Federer won 76 percent of the sets and 82 percent of the matches he played.
There's a similar pattern in equity markets. Since 1990, the S&P 500 index of the leading U.S stocks, has closed higher and slightly more than half its trading days . Again, the exact figure is 54 percent. But those daily wins paid off over time. Over. That period, the S&P 500 has finished higher in 72 percent of quarters, and in 82 percent of calendar years.
In other words, you don't have to win every point to be a tennis champion; indeed, you can afford to lose almost half of them. Similarly, you don't need the equity markets to rise every day to have a successful investment experience.
Temperament beats intellect
What you definitely do need in investing is mental strength, as the world’s most famous living investor Warren Buffett has repeatedly said. In an interview with BusinessWeek in 199 he explained:"The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd nor against the crowd.”
In his 2007 letter to Berkshire Hathaway shareholders Buffett wrote: "Success in investing doesn’t correlate with IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
It’s precisely those same qualities, emotional control, patience and mental resilience, that top tennis players need and that Roger Federer had in abundance.
Rafael Nadal, Federer’s longtime rival, once said that “his mentality is one of the best the sport has ever seen”. Another rival, Novak Djokovic, said of him: “What impresses me the most is his consistency. His ability to play his best tennis in the most important moments of the biggest matches.”
Federer’s mental resilience has also been praised by top players from previous eras. ”What Federer has achieved,” remarked John McEnroe, “comes down to his unbelievable mental toughness and his calmness under pressure.” Another tennis legend, Rod Laver, once said of him: “To stay calm and focused, no matter what is happening around you, that’s the sign of true greatness.”
Stay focused, calm and positive
As investors we are constantly surrounded by potential distractions. Both the traditional media and our social media timelines are full of stories about people who appear to have made a quick killing buying such-and-such a stock or cryptocurrency. In addition, there are always so-called experts suggesting that markets are about to rise or fall and that now is the time to act.
When markets do fall heavily, as they inevitably will from time to time, the temptation is to act on our emotions and reduce our equity exposure, or even bail out altogether. The secret is to be ready for the daily ups and downs of the markets, and for occasional corrections or even full-scale crashes. It’s especially at those times that we need to see the bigger picture and focus on our long-term goals.
Roger Federer was a master at it. "I’ve always been able to find a sense of calm in the chaos,” he once said. “I think that’s what helps me in those high-pressure situations where you need to focus and not let emotions get the better of you."
Another lesson investors can learn from Federer is his positivity. Here’s something else he’s said: “I always believe if you’re stuck in a corner, and things are going against you, you need to find something to stay positive about. I’ve always been very positive, thinking there’s always a solution and a way forward.”
As an investor, there are bound to be times when you feel uncomfortable. Two years into a bear market, for instance, it can be even be hard to imagine stock prices ever recovering. But, time and again through history, markets have indeed recovered and gone on to reach new heights. So the rational response is to stay positive when things seem bleakest, to keep investing regularly, and, if you’re brave enough, to invest even more than you normally do.
Remember that over the course of your investing career there will be almost as many “down” days for the markets as “up” days. If you can learn to accept, and even embrace, those down days and stick to your plan regardless, you really will be a long-term winner.
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