At first glance, finance and tennis seem pretty unrelated. But I’ve really come to appreciate how the strategies for winning at finance are remarkably similar to those for winning at tennis.
But how? And why?
My history with tennis
I will never be confused for a great tennis player. But I did play much throughout my young life. And I like to play every once in awhile as I can today. Mostly I play against my brother Jason, who is obsessed with tennis and really good.
But I never really played tennis seriously. I think the reason why is that I was big into baseball. And baseball season coincided with tennis season and baseball usually won.
However, I did play in a competitive summer league as a kid. I would show up on summer days where I could (i.e. days without baseball) for practice or matches and play. I won more than lost but nothing crazy.
What at all does this have to do with winning at finance?
I’m getting to it!
Well…the other day I was watching tennis with my brother and my kids walked in. They were into it. So we spent some time talking with them about how to play tennis etc.
Then we got to reminiscing…
The pinnacle of my tennis career was when I was 12 years old
That year was a big one for travel baseball so tennis really took a backseat. We won the state tournament in baseball so we travelled for regionals and a ton of other tournaments.
I didn’t play in any of the “regular season” tennis matches in my regional tennis league.
But at the end of the year, there is a huge league tournament to crown a champion. It all takes place over 1 day. Which is insane. Like if I tried to run around that much in one day now…well, it’s better not to think about it.
Anyway, you didn’t need to play in other matches to qualify. Basically anyone in the league can be in the tourney. So my team asked me to play in the singles bracket.
I came into the tournament as one of the lowest seeded players. Now, shocking as it may be to believe now, I was pretty athletic back in my day. And I wasn’t playing the next Rafa Nadal’s here. So I distinctly remember coming up with my strategy for this tournament.
I was just going to focus on hitting the ball over the net to my opponent’s side
That’s it. I wasn’t going to try and hit incredible winners. I was just going to run around, rely on my athleticism, and try to keep hitting the ball back over the net.
Now, I didn’t necessarily label my strategy as such as the time. But my strategy was to eliminate unforced errors. If my opponent was going to beat me, they had to beat me. I wouldn’t beat myself.
Interestingly enough, this has become my exact strategy for winning at finance as well…
But before we get into that…I’m sure you all are dying to know how the strategy worked in the tournament!
And I’ll save the suspense. It worked like gangbusters!
Like I said, I started as one of the lowest seeded players. In the first two rounds, I played tough opponents and ended up winning.
Then, in the quarterfinals I played the kid ranked #2 in the area. He was good. And took it really seriously. But I ended up winning. Because I really frustrated him by just continuously returning every single ball that he hit to me. Eventually he would get impatient, try a misguided shot, and commit an unforced error. I remember to this day feeling so validated by my strategizing.
I ended up winning the semifinals and meeting the #1 player in the area in the finals.
And he was just too good. I kept hitting the ball back. But so did he. Only he hit it back harder and more accurately. I mustered to make it competitive. But the better player won.
And that is my tennis story. I really do appreciate you all indulging me. So let’s now move on to the finance side of things…
Winning at finance using my tennis strategy
If you watch enough tennis, you begin to notice a trend: the winner usually has less unforced errors than the loser.
And the same thing really goes for finance.
Find the winners and you find those who have minimized their self inflicted finance errors. It’s less that they are winning in flamboyant fashion. And more that they are just not losing in catastrophic fashion. They often come off as boring. But they win.
Compare Warren Buffet to ex-FTX head honcho Sam Bankman-Fried
6 months ago and a lot of people would say that SBF was #winning. He was financially sexy. Just like the tulip bulb that he was peddling…cryptocurrency.
Meanwhile, stoic investors were boring, stuck in the past. Decidedly they were not sexy. Index fund investing?! C’mon, use your imagination!
Fast forward to today and things are more sobering.
One group has a self inflicted hole in their shoe. And the other keeps pattering along. It may not be exciting, but it is effective.
This goes especially true for doctors
I’ve said this a million times. As high income earners, we have a huge financial advantage.
Sure, doctors also face a later start and much higher debt burden than their non-physician peers. But our much higher income (even for lower paying specialties), can more than make up for this.
Our high income makes it so that we don’t need to hit home runs (forgive another sports metaphor) to reach financial freedom. We just need to hit singles. And avoid striking out.
Bringing it back full circle, we just need to hit the ball back over the net. We don’t need a miraculous shot between our legs that just barely hits the line. Instead, we just need to get it over the net and in bounds.
We don’t need the prescience to predict the next big stock or investing fad to hit it big and reach our goal nest egg in one year. We have years of high income to build our wealth the reliable way. Instead, we just need to invest in the overall market via low cost, broadly diversified index funds over the long term.
Don’t become the financial version of Gael Monfils
One of my favorite professional tennis players is Gael Monfils. He’s French and just incredibly athletic. While older now, much of his career was spent in the top 25. He’s won a bunch of tournaments.
But he just could never break through to be a consistent top 10 player.
Why? Well, the reason he is one of my favorites is he makes some of the most unbelievable shots and plays that you will ever see. Honest miraculous feats of athleticism. Seriously, check out this video…
But for every miraculous shot, there are 2-3 mundane, routine shots that he misses. Instead of piecing together a boring sequence with a high probability of winning, he’s attempting to win the point in one shot with a low probability play. Sure, sometimes it hits and it amazing. But it’s a low probability shot. So, by definition, most of the time it misses.
This is the equivalent of a doctor with no retirement savings angel investing in a medial start-up
And I hear stuff like this all the time!
Just the other day at a conference, I heard other surgeons discussing how they invested in some crazy medical start up that they are convinced is the next big thing. Now I am not privy to their retirement accounts. But reading between the lines of the conversation, I am pretty sure they are not where they should be…
So, what are these doctors doing? With a goal of winning at finance, they are shooting their shot with a low probability investment. Sure, if it hits, that’s great! And every once in awhile it will. But again, by definition, this is low probability. They are much more like that the start up goes bust!
What they need is a strategy that does not rely on the ability to accurately predict the future. Like investing in the overall markets over the long term…Instead they are committing a completely unforced error.
I see this a lot in real estate as well
Real estate is dangerous because it can seem like a sexy investment vehicle. But it also does work when done properly. So it sucks a lot of investors in who are looking to “get rich quick.” But that is not how real estate works…
It’s a long haul when done right. It’s a flywheel, not a rocket ship…I know this better than most.
But I see doctors jump into real estate, buying the first property they see with grand plans in their mind. They fail to educate themselves enough and don’t analyze properties properly. They want this one property to take them to financial freedom. So they stretch things…
Now, in order for this property to work, they need 10 low probability things to all go their way. Guess what, it rarely lines up that way!
They would be much better taking time for education and analysis. Then start boring. Buy properties that cash flow even with conservative analysis. Choose ones with high probability of success, even if things don’t all go your way (because they won’t).
Related Post:
5 Rules for Successful Real Estate Investing
Here’s the bottom line
Winning at finance is surprisingly easy.
- Create your financial goals
- Make them into a written financial plan
- Calculate your goal retirement nest egg
- Invest in low cost, broadly diversified index funds
- Avoid tempting but ultimately bad investments like these
That’s it. Anyone can do it. Anyone can hit the ball back over the net. And anyone can limit unforced errors. No innate skill or advanced training required.
Just develop simple financial habits based on these rules and you will be set!
What do you think? What’s a better tennis strategy? Should winning at finance be sexy?Or is boring ok? Let me know in the comments below!
Hey dude, definitely like the tennis analogy same example as winning the losers game by Charles Ellis. Although in my tennis career, I totally sucked and even minimizing unforced errors still lost a lot. Only made it to the JV tennis team my freshman year of high school š
And that is where the temptation is to not minimize errors, but to go for some winning hits. In my short tennis career minimizing unforced errors still I was losing. I was tempted to take harder shots and to get a lot more winners. This might be the same problem with investing. If you try to minimize unforced errors, youāre not getting the big results or any positive reinforcement that what youāre doing is right. You did, but I kept losing. This is really the big barrier to sticking to a boring index fund type approach.
Rikki! “would players have a better chance of winning the point, even after factoring in the sure rise in double faults, by going for it again on the second serve ā in essence, hitting two first serves? The answer is yes, over time, for many of the top players…Generally, the top menās players make about 65 percent of their first serves and 90 percent of their second serves. But when the first serve goes in, most win about three-quarters of the points, often on aces. On second serves, the win-or-lose proposition is about 50-50…People prefer losing late to losing early,ā Daniel Kahneman, a Noble Prize-winning psychologist and professor emeritus at Princeton, wrote in an e-mail. Some of Kahnemanās best-known research, with Amos Tversky, focused on decision-making and peopleās aversion to risk, even when given identical potential outcomes. āImagine a game in which you have a 20 percent chance to get to the second stage and an 80 percent chance to win the prize at that stage,ā Kahneman wrote. āThis is less attractive than a game in which the percentages are reversed.ā Either way, a player would have a 16 percent chance of winning the prize. Similar math can be applied to tennis. But something else is involved, too. āThe psychological cost of a double fault may be worse than losing a volley,ā Kahneman wrote”
Really interesting and I think great points all around!