Have you watched any of the Olympics?
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When I was growing up, the Olympics were a big deal. My brothers and I dreamed of competing – in skiing, or in running, or in some other sport. We spent hours in front of the TV watching competitions in Mexico City or Munich or Montreal. The “Olympic theme” that played on ABC Sports still runs through my head sometimes – the opening kettle drums and trumpet fanfare – and can still give me goosebumps.
But honestly, the Olympics have always been more than sports. They were a proxy competition between the United States and the Soviet Union. They were a showcase for amateur talent that hadn’t yet been commercialized. And they were a platform for political views – whether it was Pavo Nuurmi lighting the Olympic torch in 1952, or Tommie Smith’s and John Carlos’ black power salute in 1968, or post-apartheid South Africa competing again in 1992. And the ancient games were a showcase for city-state competition back then as well.
But no matter your opinion on sports, politics, culture, and media, almost everyone agrees that the Olympics provide amazing demonstrations of athletic excellence. The years (and decades) of dedication and training are clear from the performances that we witness.
Olympic-level sports is a great example of a “winner’s game.” The competition is at such a high level that the margins are tiny: hundredths of a second in swimming or track, a single “bobble” in a gymnastics routine. That’s part of what makes watching it so compelling. In elite competitions, the ultimate outcome is determined by the actions of the winner. Athletes focus with laser-like precision on their objectives. It’s thrilling to watch.
An Olympic winner 45 years ago. Source: Time
By contrast, most of us play sports at a far more pedestrian level. If I run in a 5k or ski in my Thursday night race league, I’m happy if I don’t fall halfway down the course. And if I don’t wipe out or make a huge blunder, I tend to do alright. We compete in a “loser’s game.” Amateur competitions are determined by the loser – be the person who beats themselves less than the other amateurs in the field. Loser’s games are fun to play, but usually pretty boring to watch.
Investing is similar. It used to be a winners game – picking the best investments. Some concentrated portfolios still engage in this practice and some of their funds have success. More often, though, it’s a loser’s game. The vast majority of mutual funds underperform their benchmarks. They’re limited by institutional restrictions or redemptions or regulations. The great mutual fund manager Peter Lynch used to call professional investors Oxy-morons because of these limitations.
The good news is that a loser’s game isn’t that hard to win. We just have to avoid making obvious mistakes – the equivalent of falling off the balance beam. Structure your investments so volatility is your friend, not your enemy. Match your assets with your liabilities, so you don’t have to raise cash when the market falls. Use tax-exempt vehicles to save on taxes, and don’t be shy about giving the government – our passive partner in almost all our investing – its share of any losses. In fact, using the government’s passive partnership in our finances is a way to improve our returns and reduce risk. The most important part is staying committed to a sound investment policy during the inevitable euphoria and depression of a market cycle.
Winning the loser’s game isn’t a matter of luck, and it doesn’t require split-second timing or brilliant performances. But it does take some dedication. Sure, a bit of luck can help. But I’ve always found that the more dedicated we are, the luckier we seem to be.