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Roger Federer's remarkable career shows that you do not need to win every point to succeed. This week's blog explores what investors can learn from tennis, why diversification matters and how focusing on process rather than perfection can improve long-term outcomes.
As it is Wimbledon fortnight, and because I’ve already written a blog post about football, I thought it would be a good opportunity to talk about tennis.
You may have seen a YouTube video of Roger Federer giving the commencement speech at a graduation ceremony at Dartmouth College a few years ago. Part of it that is often quoted is when he talks about his playing stats: throughout his whole career he won 80% of his matches. This struck me as interesting because 54% is about the same win rate you might reasonably hope for as an investor.
His takeaway is that you need to focus all your energy on the current point but then put it to the back of your mind afterwards and move on. You are going to lose almost as many points as you win so don’t dwell on the negatives. I would add that it is also important to learn from your mistakes (and your wins too) by reflecting on why you made a decision and true reason you got it right or wrong, but clearly the time to reflect is not in the heat of battle lest you descend into a never-ending spiral of reflection and forget you are meant to be playing tennis. Or are you meant to be investing? Who knows?
Another learning point, although it’s not directly observable in the data Federer mentions, is that when you win your points can make a big difference. It is entirely possible to win more points than you lose and still lose the match. In a set of tennis, let’s say you win every service game to love (so you win 4 points) and lose every game when returning serve after the first deuce (so you win 3 and lose 5). Then you lose the tie break 5-7. After 12 games and 1 tie break you will have won 47 points and lost 37, giving you a win rate of 56%. That’s great but you have still lost the set to your opponent, who has a win rate of just 44%. You could go on doing the same thing for your entire (probably pretty short) tennis career - not winning a single set or match despite having a points win rate higher than King Roger.
Different people will interpret this finding in different ways. Your takeaway might be you should focus your efforts on the big points or investment decisions and make sure you get them right. Not wasting time and effort on things that will have little impact is no doubt desirable when time is limited but, if even the great Roger Federer only managed to win 54% of his points, what chance have you got? You can work extra hard and think extra long about a decision, but randomness plays such a huge role in the outcome that the odds of you getting the call right will still only be a bit better than half.
This is why macro investing is so hard. There aren’t that many levers to pull – buy equities, sell equities, buy bonds, sell bonds. Ok, that’s an oversimplification, but the point is that the breadth of decisions you can make is comparatively narrow versus, say, a bond investor focused on security selection who has thousands of bonds to pick from.
It is not much of a stretch to say that the more shots you have on goal, the more likely you are to score, although the relationship is far from perfect. And this is why diversification must be the right thing to do in situations like this. It’s not the way to be the very best performer - there’s a concentrated portfolio that beats a diversified portfolio every single time - but that isn’t a reliable or repeatable way to deliver returns.
Key takeaways
- You don't need to be right all the time
Even the best investors and athletes make mistakes. Long-term success comes from maintaining discipline, focusing on the next decision and avoiding the temptation to dwell on short-term setbacks. - Timing and concentration matter
Not all decisions have the same impact. A small number of big calls can determine outcomes, but the unpredictable nature of markets makes consistently identifying those moments extremely difficult. - Diversification is a more reliable path to success
Rather than relying on a handful of high-conviction bets, diversification increases the number of opportunities for success and helps create a more repeatable approach to delivering long-term returns.
CJ Cowan
Portfolio ManagerCJ is a portfolio manager of the Quilter Investors Cirilium and Monthly Income Portfolios. CJ joined Quilter Investors in August 2018 from Aberdeen Standard Investments where he worked in the global macro team, managing global government bond and global aggregate portfolios.
CJ is a CFA charterholder and has also completed the Chartered Alternative Investment Analyst qualification. CJ has a degree in economics from the University of Bristol and an MPhil in Economic and Social History from Brasenose College, University of Oxford.
