The Sport of Investing

I have always wondered if investing is a sport or a profession. What I mean to say is that should investing be about competition or should investing be about generating good returns on investment. Although a lot that an investor does, especially a very public one, can be qualified as a sport when we use league tables to judge fund managers, private equity investors, etc. But is investing really a sport or just another professional activity?

Well professional sportsmen will surely differ here, saying, ‘hey, even we are professionals.’ Sure they are, but the context is different when emotions are involved. It is weird since both investing & sporting involve the same level of emotional demands from the player. (S)He has to make decisions in a cold and calculated way which can make the difference between glory & defeat. An investor faces the same emotional dilemma, but not with glory or defeat (entirely), but with money & worse – other people’s money. So the emotional motivation to get glory at all costs is the fundamental difference between sporting & investing, because an investor can’t bet the ranch when the odds are not in favour (at least that’s what should happen in a rational universe).

The reason I compare these two activities is because I watched a documentary about the legendary (late) Formula One driver, Aryton Senna. Its called “Senna“. A wonderfully made, heart wrenching film about the driver’s meteoric rise, the sport of formula one & his untimely death in an accident. The end reminded me much about how investors & traders can also feel the colossal effect of a fatality (not with life but with money) of a decision gone wrong. But you still live another day for the next round, unlike in Senna’s case. In his interviews which have been restored from archived footage, he talks about what he feels of the sport & his skill as a racing driver.

To give some background, Senna had been penalized for an accident while he nicked his car against team-mate & arch rival Alain Prost (of McLaren) which meant the end of the race for Prost & Senna continued with relatively less damage to win the race & the championship title. The race victory was stripped away from him as a penalty. In an interview later, the former Formula One driver Jackie Stewart asked Senna how was it that he was the most accident prone driver in any given stretch of 36 month period in the history of the sport? (which in fact is not a relevant comparison since nobody really drives in a race for causing accidents). To which Senna replied very emotionally that, “When we call ourselves racing drivers we see a gap, we take it. If we fail to do that, we can no longer call ourselves racing drivers”.

Isn’t this what investing is all about? We try to find gaps in the value of an asset, a security & we try to take advantage by acting on the gap. The gaps in the race are chances to move & exist only for a limited time frame of a second or two. But in investing the gaps have been known to exist for a lot longer than that & also some exist for a very short time. But this gives us even more reasons to rejoice so that we can keep on taking advantage of the gap as long as it exists.

Investing is not a sport, although its risks are real just like any sport. It isn’t necessary to compare one investor with the rest because all we are dealing with is past performance based on situations which had existed at those times. Its really the process that comes to work in the end. A racing driver can have a few fluke victories, but a sustainable, long term great performance is only possible when the driver has developed a process with which he uses his ability to race.

Buffett used to say in his partnership letters that our only benchmark is the S&P 500 index & Dow Jones Index, & that he would be glad if he could consistently beat it with a few percentage points difference over the long term. Well, he has done a lot more than that, but the point is taken. How any investor will perform in the future depends on a lot of factors and skill & luck are a very large part of them.



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