What does sport teach us about investing in the stock market?

Investing in stock market has many similarities to sports in general.

When FIFA World Cup 2022 began last week, it dawned on me that football or cricket or any other sport are similar to investing in stock market.

 One needs to prepare to win in any sport, there has to be a long term strategy to develop your game, you require consistency and you have to take care of your fitness to play the long term game. Does it sound similar to your investing journey? I believe your answer will be a YES.

In  this article we will cover many such similarities with sports and investing. Here is how this article is divided:

  • Why starting early in investing/sports is important.
  • You need to have a strategy to win the game of investment/sports
  • Why you can not go long in your investing/sport journey without consistency.
  • Resilience- learning from mistakes as important as winning..
  • Emotional mastery- Those who are emotionally resilient can weather any storm
  • Risk- Should you go all in or take calculated risk.

Why starting early makes this game easy to win?

Investing, like sports, is a long game. 

It takes years of behind-the-scenes training for a sportsperson to build endurance, stamina, and the skills to play competitive sport. Most of the top players in any field we know, started playing and training from a very young age. Hours of daily practice and learning the nuances of the game build the foundation for splendid performance later.

 An investor who starts the investing journey early, benefits from the power of compounding, learns from the ups and downs in the market, and builds their skills and knowledge of investing. 

‘Time in the market is more important than timing in the market’ is true over the long term. 

Longer the time you spend managing your investments, better is your expertise in investing in stocks, managing risks and making better decisions.

Without a winning strategy, you are bound to lose

‘You can reach anywhere If you do not know where you are headed.’

Before any game, every sports team has a defined strategy to go ahead. They study the opponent and define the tactics for every game or championship. Even mid-game, players adjust their tactics depending on the situation. 

Investing too requires defining goals, risk appetite, right asset allocation and a long-term financial plan. With a clear strategy, you can automate your investments, book profits at the right time, exit or stay the course. 

Strategy also means adjusting your plan when macros change to keep up with any changes.

Consistency – Those who play long term game are consistent

In his book ‘Outliers’, Malcolm Gladwell says it takes practice to get good at any skill and true expertise requires 10,000 hours of practice.

 Pro players may not count hours but practice relentlessly to perform the way they do on the world stage. Ace sports persons practice their game every day with discipline and consistency. Not only sports practice, but even their lifestyle demands discipline in terms of diet and habits. 

Financial planning and investing too require consistency in managing your expenses and keeping aside a sum for investment every month and investing as per your financial plan every month. 

Investment in equity markets pay off when you stay invested over the long term to weather the market cycles, ups and downs.

Resilience – Learning from mistakes, as important as winning

There are no permanent winners or losers in sports. Every game is different. The ability to accept defeat, keep the ego aside and learn from one’s mistakes is crucial in sports.

 Investing is also a journey where you learn along the way, make mistakes, take corrective actions and get back up on track.  

Managing Emotions – Those who are emotionally resilient can weather any storm

The ability to manage your emotions, and keep moving without losing nerve when the stakes are high requires emotional mastery.

 Accomplished sports persons are trained to practice the skill of zen-like calm in moments of immense pressure. In markets too, you need to have the nerve to withstand the highs and lows. Market swings, economic headwinds, long periods of slump, or black swan events can jolt even seasoned investors. 

The ability to weather the low phases, not act on impulse or popular ‘tips’ and staying on your financial plan is utmost for every investor.

Taking Risks – Should you go all in or take calculated risk

No game is won until players take calculated risks at the right time. Be it a penalty goal or a last-ball hit, there is a risk in taking the shot at the moment. Sometimes it’s a ‘Do or Die’ situation and the player must act. There is a risk of losing the game and at the same time, you can hit a historic win for your team or country. 

Risk is inherent in every investment category, more so in equity markets. There is a probability of losing all your money, yet investors must take calculated risks to beat inflation and earn better returns.

We hope that you ace your investing game and hit all your financial goals just like FIFA champs. Happy Investing!

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