Every 4 years, football fans slope off work early and head to the pub to watch their national team compete in the World Cup. Whilst they passionately cheer for their team, they often overlook the role managers play when it comes to leading the team to victory. Not only do they drive their players to give their best on the field, they can also inspire us with their management skills. The abilities they demonstrate have a lot in common with qualities possessed by great investors.
They set goals
Before doing anything, football managers and investors determine their objectives which in turn help them decide on their strategy. For instance, a team like Manchester City aims to win the Champions League and finish first in the Premier League. Once the goals are clearly outlined, tactics, including selecting and buying players, can be implemented. Similarly, good investors have projects in mind. They can choose to invest to potentially help their retirement pot flourish or go on their dream holiday. Setting investing goals can help them decide how much they want to put in and how long for.
They manage risk
Risk is inherent to both football and investing but managers and investors have ways to mitigate it. Whilst the former ones typically select more than one player to occupy the same position, so if one gets injured, they can easily be replaced, the latter try to spread risk by diversifying their portfolio. Put simply, they could choose to invest in a varied range of investments (things like shares, bonds, property and commodities) coming from different markets or countries. As a result, their money is stretched across different assets and places, meaning that, if some markets are performing negatively, potentially not all of their investments would be affected.
They ignore the noise
Football managers and investors don’t listen to the media craze. During the 2014 World Cup, the German coach, Joachim Löw was severely criticised by the press for his choices after a timid start, but he ignored the critics and continued with his strategy, which resulted in a historic score of 7-1 against the host, Brazil, and a fourth victory in the final. In the investing universe, the media can also be quick to turn any market fall into a seemingly unavoidable crash. But what should you consider when the markets drop, and news outlets dramatise the situation, which can sometimes make people panic unnecessarily. Good investors usually plug their ears, remain calm, and avoid the urge to sell their investments, knowing that investing is usually better over the long term.
They think long-term
Managing a football team and investing in stock markets can require a long-term vision. Football managers can sometimes make the choice to take on young players in their team, hoping they will eventually mature and become great assets in the future. For example, in 2007 Tottenham bought a young Gareth Bale from Southampton and sold him 6 years later to Real Madrid for a world record fee. Just like football managers, investors are encouraged to adopt a long-term strategy and hold onto their investments for many years to hopefully ride out the highs and lows of markets and benefit from the power of compounding. Research found that people who invested in the UK’s flagship index, FTSE 100, during any 10-year period over the past 2 decades, had a 95%1 chance of making a positive return.
1: This is money, Feb 2016 - http://www.thisismoney.co.uk/money/diyinvesting/article-3452668/A-10-year-investment-FTSE-100-95-success-rate-past-two-decades.html
Past performance is not a reliable indicator of future results.
They both have support
Both football managers and investors can sometimes do with a helping hand. Managers typically have assistant managers to help them pick the right team, coach the players, and map out strategies. Likewise, some investors who are too busy or not confident enough to select their own investments, can choose to let services, like digital investing platforms, do the hard work for them. At Wealthify, after choosing how much you want to invest, how long for, and the risk level you’re comfortable with, our Investment Team build and manage your portfolio, meaning you can relax and enjoy potential financial growth.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.