Investing Like Federer: Long-Term View & Patience

If there is one professional sportsperson that I look up to and admire for their excellence and mentality it is Roger Federer. In the last 40 years, only 3% of men’s grand slam tennis champions have been older than 30, so it is remarkable that Federer has won Wimbledon only a few weeks shy of his 36th birthday. He also won the Australian Open this year.

You can’t do that without having a phenomenally intelligent approach to everything you do. Since my interest and career is in investing, I want to look at some of Federer’s personal traits and find things there that investors should look to replicate.

Long term perspective:

Federer is a master at taking the long term view. He built a smooth and efficient playing style that doesn’t take a toll on his body. He learnt to peak at the more important slam events even if he suffered some humbling defeats in the lead up tournaments. On occasion he has appeared to practice new tactics in the smaller tournaments in order to make a long term gain, but he sacrificed some victories in the short term to get there.

The stock market is a voting machine in the short term and a weighing machine in the long term which means you don’t know what results you will get in the next 12 months but if your analysis is good you will eventually get what you deserve. If you can look past the noise of the daily news flow, and quarterly earnings, and focus on long term investment prospects it becomes a lot easier to achieve excellent investment returns.

Patience:

When Federer was playing his rival Rafael Nadal in the Australian Open final, he was 3-1 down in the fifth set but he was playing well with an aggressive new approach attacking Nadal’s serve and the match was being decided by whether he was hitting winners or errors. Federer stuck to the same approach even when down a break in the fifth and it finally yielded results as he won the last 5 games to win the match. He didn’t over react to the scoreboard and let it take him away from his best chance of success. The scoreboard eventually caught up with a process that had a high chance of working.

Perhaps the most important aspect to successful investing is to carefully find an approach that can work for you and stick to it. If you take a value investing approach for example, it will work in the long run but you need to trust the process in the tougher times because no approach works every year. The stock market is a great mechanism for transferring wealth from the impatient to the patient. It is very hard to be patient and not to react to the "scoreboard" because you might have to endure years of being outperformed by other investors, and these investors might be your family friends, or neighbours. You need Federer like Zen to not be affected by that.

Know your limitations:

Federer knows he is least effective on clay and at the age of 35 his body needs rest. Despite having defeated Nadal 4 times in a row on hardcourts, Federer was not tempted to play the French Open or any of the clay court season. His rationale was that he needed to have his body fit for Wimbledon and he was probably going to lose to Nadal on clay anyway. In hindsight this looks like one of the best sports scheduling decisions ever.

Warren Buffett has famously resisted the temptation to invest in fast growing technology companies because he considers it outside of his circle of competence and he realised his ability to find success in this area would be limited. As Charlie Munger (Warren Buffett's right hand man) has commented 'If you think your IQ is 160 but it's 150, you're a disaster. It's much better to have a 130 IQ and think it's 120"

The Losers Game

I can’t pretend that Federer’s mentality with tennis is a perfect match for investing so here is a Federer trait that does not work too well in the investing world. When Federer steps onto the court he is ultra aggressive. He is playing shots that are close to the line or on it. He will hit a lot of winners and make very few errors. He needs to play like that or else his opponent will blast winners against him. However, for myself as an average club player my best chance of winning is to get the ball in play and wait for my opponent to make errors.

This analogy between professional tennis, club tennis and investing was presented in an article by Charley Ellis in the Financial Analysts Journal in 1975 titled “The Losers Game” Ellis concluded that investors should not be trying to invest in incredible winners as if they are a Federer. Instead they should be employing club player tactics and focus on reducing errors in order to win at the investment game.

We should prioritise to avoid investment mistakes rather than being over confident and trying to paint the lines with winners. If we are confident that we are avoiding errors we will also face less irrational urges to sell at the worst possible time. As Howard Marks states “there are old investors and bold investors, but no old and bold investors” or Warren Buffett has said “An investor needs to do very few things right as long as he avoids big mistakes”

We can take a lot of investment lessons from Roger Federer’s success and celebrate his genius, and it is easy to see some parallels between his approach to tennis and Warren Buffett’s approach to investing. However, while Federer is hitting the lines in the tennis world and generating ooh’s and ahh’s from the crowd, our best approach in the investment world is to keep that ball in play.