This year marked my 7-year-old son’s debut in organized basketball. 🏀 At the end of each practice, they’d wrap up with a game of dribble knockout to amp up their ball handling skills. (If you’re not familiar, an NBA Hall of Famer demonstrates it in the video below.)

Watching from the sidelines, I noticed my son routinely got knocked out early. Either, someone swiped his ball, or he lost control of it on his own, trying to knock someone else out. So, one day, I suggested a tweak to his strategy: Instead of aggressively trying to knock out others, focus on his own dribbling and stay away from his teammates until only a couple kids remained. In other words, aim not to lose instead of just trying to win.

And guess what? This lesson worked like a charm. Quickly, he went from an early exit to one of the last players left in the game by making a simple tweak to his approach.

Game Theory – From Basketball to Tennis to Investing

Turns out, there’s a book that explores this concept, titled Extraordinary Tennis for the Ordinary Player by Simon Ramo. (For all you pickleball enthusiasts, just swap out “tennis” for “pickleball”).

In his research, Ramo tracked points in professional and amateur matches and found a striking pattern:

1. In expert tennis, about 80% of the points are won, while in amateur matches, about 80% of the points are lost. It’s like a Winner’s Game versus a Loser’s Game – pros win with precise shots, while amateurs often lose due to self-inflicted miscues.
2. As an amateur, if you choose to win at tennis – as opposed to having a good time – the strategy for winning is to avoid mistakes. Focus on avoiding stupidity, not seeking brilliance.
3. Sometimes amateurs believe they are professionals but professionals never believe they are amateurs. Read that again…
4. The author sums it up stating, “the point is that most of us are amateurs but we refuse to believe it. This is a problem because we’re often playing the game of the professionals. Rather than trying to win, we should avoid losing.”

The parallels to investing are striking. Much like in tennis, professional investors excel through vast repetition and training that allows them to avoid common mistakes. But amateurs? They tend to lose because of their own blunders and the failure to steer clear of them.

In investing, it’s often easy to think you’re a professional, playing to win more instead of losing less. When was the last time you heard a friend at happy hour, a colleague at work, or someone at the barber shop tell you about a great stock pick? That’s an amateur move, my friend, and it can derail your financial goals faster than you can say “recession.”

The Investment Game Plan
Non-professional investors can adopt a similar strategy to Ramo’s advice for tennis players to play to lose less (rather than trying to win more). Here’s a few suggestions to do exactly that:

1. Have a financial plan – A roadmap to your financial goals helps you stay focused and avoid impulsive decisions driven by market swings or emotions. Fail to plan, and you plan to fail.
2. Get a financial coach/advisor – Emotions often cloud your judgement when it comes to money and investing. A coach can help you create a plan and provide the accountability necessary to stick to it, potentially adding 2% per year to your portfolio returns by avoiding costly mistakes.¹
3. Consider passive funds – Exchange Traded Funds (ETFs) that mirror an index at a very low cost can help you win by losing less, as they often outperform actively managed funds simply by not trying to win (and thereby losing less).
4. Diversify your portfolio: Owning individual stocks can be entertaining but there’s a good reason most professional money managers limit their exposure to a single stock to less than 5% of the portfolio. For every Nvidia stock that loudly skyrockets, there’s a herd of stocks like Moderna, Pfizer, Estee Lauder, and Lumen Technologies – that were quietly down more than 40% last year.

Sure, playing to win is undoubtedly more thrilling – whether it be dribble knockout, tennis/pickleball, or investing – than playing NOT to lose. But as you consider your investment portfolio, it’s worth asking yourself is your goal to have fun or achieve your financial goals?

Castle Quote: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”

– George Soros

1. https://advisors.vanguard.com/content/dam/fas/pdfs/IARCQAA.pdf ↩︎