Unlike sports, winning and losing are not zero-sum games in investing
22-Nov-2023 •Dhirendra Kumar
I will start this column with a cricket reference, which is the done thing nowadays. Many years ago, when Adam Gilchrist was the captain of some IPL team, a TV presenter asked him this hackneyed question before the beginning of a match, "So how many runs do you think will be enough on this pitch?". Gilchrist, who was never one to suffer fools gladly, replied, "I guess one more than the other lot, mate." As every Indian cricket fan is painfully aware, the idea of victory or loss is integral to sports. Regardless of feel-good statements about 'victory for cricket', no one has any illusion about who won and who lost.
Notwithstanding any sports metaphors about it that we might like, investing is not like this. For you, as an investor, to win, no one else has to lose. If you meet your financial goals, you win, along with everyone else who has met them. Everyone can win.
There's an old, now forgotten, saying in advertising, "When a customer comes in to buy a quarter-inch drill, what he needs is a quarter-inch hole." We sometimes get lost in the talk of the technicalities of mutual funds, but investors are looking to get the money to do the things they want to do in life. Buying a house, a good education for your children, living a comfortable retirement, and leaving a valuable inheritance for your family are real goals, not any kind of 'win' at some competition.
Strangely, many investors create artificial criteria for victory and consider a problem if they don't meet them. The commonest, which afflicts both mutual fund and equity investors, is that the investment they have chosen must have the highest return among peers. No matter how well their investment does, they have suffered a defeat if some other fund or stock does a bit better. The urge to compare one's returns with the top performers is understandable but counterproductive. In truth, nothing consistently ranks at the very top year after year. Chasing the latest hot investment is a recipe for buying high and selling low. It is doing its job as long as your portfolio delivers solid long-term returns in line with your financial plan. The key is tuning out the noise and unrealistic expectations. Instead, focus on your goals and let your portfolio work steadily towards them over time. In investing, no medals for coming in first by a nose. The only race that matters is your own.
The idea that investing is a zero-sum game where someone must lose for you to win is a harmful myth. This is not a sporting event. Rather, it is a tool that, when used properly, can help all investors achieve their financial goals. When an investment does well, it benefits every stakeholder, not just a select few. Likewise, broad market growth over the long term lifts all boats. Your investing success does not require someone else's failure.
One additional problem happens when someone decides they missed out on a win they should have landed but did not because of an error or oversight. In these situations, the right thing to do would be to acknowledge the problem - if there is any - and replan if necessary. However, investors do not mentally accept the situation. They plan more aggressive and risky strategies to win back the money they feel is theirs. This is also a recipe for disaster.
Stay focused on your real investing goals - securing your and your family's futures. Daily, tune out the market noise and speculation about who is 'winning' and 'losing'. You can steadily build wealth over decades with patience and a well-diversified portfolio - approach investing with a collaborative mindset, not an adversarial one. Your ultimate competition is yourself - are you effectively using the market to achieve your long-term aims? If so, you are winning, regardless of what others around you may be doing.
Also read: Keep calm and invest on