The Investing Games

The recently concluded Olympics and especially the Paralympics were true testaments to the power of the human spirit. After the disappointing Covid-disrupted Tokyo Games, Paris delivered thrills, spills and spectacle, buzzing crowds, and, of course, a monumental backdrop.

There are a few obvious, even trite, investment analogies. Investing is a marathon, not a sprint, it is often said. The 100m sprint is probably the highlight of every Olympic Games, more so this year when the men’s race saw mere microseconds separating the winners. Long-distance races might make for less gripping viewing than the blink-and-you-miss-it sprints, but that takes nothing away from marathon runners and their incredible feats of endurance. Investing similarly requires a kind of stamina, which largely involves being able to ignore bold headlines. There was a time when information was scarce and access to data gave some investors an edge. Today, it is information overload and success comes from filtering out noise. Chart 1 offers a simple example of how market returns are considerably less volatile when you take a step back. Just as marathon runners don’t benefit from tracking their pace over very short distances, obsessing over every up and down of the stock market helps no one.

Chart 1: FTSE/JSE All Share Index returns over different periods

Source: LSEG Datastream

Keep it simple. One of the surprise heroes of the 2024 Paris Games was the Turkish shooter Yusuf Dikec. His calm, no-nonsense approach, without special glasses or protective gear, one hand in the pocket, not only won him a silver medal, but also made him an internet celebrity. Investing similarly needn’t be overly complicated or costly. And if you don’t understand it, it’s probably best to leave it alone. Moreover, constantly shifting portfolio allocations around is not only hard work, but also increases the risk of getting it wrong and incurring trading costs along the way. Remember that in the context of investing, doing nothing is also doing something.

Teamwork wins medals. There are many team sports at the Olympic Games, and South African teams won medals in the men’s 100m relay and rugby sevens. But even individual athletes don’t operate alone. There is a support team behind each of them, including coaches, medical personnel, logistics managers and more. Investing success similarly rests on partnerships between clients and advisers, advisers and product providers and so on. Since everybody has blind spots and behavioural biases, it is useful having others around to point those out to us.

Speaking of teams, no football or hockey team would start a match with more than one goalkeeper on the field. Or with only strikers and no defenders. Balance is as important to an investment portfolio as it is to a sports team. Of course, team balance needs to make sense in the context of the coach’s strategy, and similarly portfolio balance is very powerful when linked to a desired investment goal and time horizon. Some asset classes are defensive, some deliver growth. Getting the mix right is probably the most important investment decision one can make, far more than picking the best fund managers or securing the lowest fees.

Some countries punch above their weight. Australia has a small population but produces many winners and finished fourth overall at the Paris Games. That says something about the country’s sporting culture and competitive spirit, but also about its priorities. Australia invests in sporting victories, and those resources could have been applied elsewhere. The point remains however, that success doesn’t just happen, it requires sacrifice, obviously from the individual athletes who must show tremendous discipline and dedication, but also from the broader society who supports them. Similarly, there are no get-rich-quick options for investors. Present consumption must be sacrificed to save and invest, and investors must remain committed to their goals.

All-time champion
The leading Olympic nation by far, however, is the United States. And this is a less obvious, but equally noteworthy analogy for investors.

The US won a total of 126 medals at the Paris Olympics, ahead of China with 91, though they were tied on gold medals at 40 each. Out of a total of 17,834 medals awarded in the Summer Games since 1896, the US won 2,764. It is ahead of the second placed USSR and its successor states (Russia, Ukraine, Kazakhstan etc). The UK is in third place, since China did not compete at the Games before 1984.

Many winning athletes from other countries train in the US at American universities. According to a Wall Street Journal article, athletes from Stanford University in California won 39 medals. If Stanford was a country, it would’ve finished eighth, ahead of Germany and Canada. Harvard’s 13 medals are more than twice South Africa’s haul. As a magnet for talent and incubator of success, US universities are unrivalled. After all, Stanford also gave us Google, Nvidia, Cisco and a host of other tech giants.

The US similarly dominates financial markets, out of proportion to the size of its economy which accounts for around 20% of global GDP, depending how it is measured.

As Chart 2 shows, US-listed companies make up more than 60% of the market value of popular global equity benchmarks such as the MSCI All Country World Index. This number has increased over the past decade as US markets outperformed the rest of the world. Even though China is solidly the number two economy by size and continues to increase its share of global GDP, that has not translated into similar profit growth for its companies. Since equity prices follow profits, Chinese equities are still a small slice of the global market.

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