Markets & Equities

Sports psychology for investors

In recent years, South African sports enthusiasts have been introduced to a few new sports terms that you won’t necessarily find in standard recognised dictionaries. Some of these include “Chokers” and “BMT” (big match temperament), which have made headlines on several occasions throughout the year. Whether its the Proteas getting stuck in yet another big game, or the South African rugby and soccer teams that struggle to make the semi-finals in the Super Rugby and Afcon series respectively, one thing that underperformance is usually blamed on, is the fact that emotions got the better of the contenders.

What is it that made it possible for a sprinter like Merlene Ottey to compete in her seventh Olympic Games at the age of 44 in 2004? Obviously, talent and hard work plays a role, but that is not enough to guarantee you success as a sports personality. Tiger Woods said, “My creative mind is my greatest weapon. It is a kind of inner vision that enables me to see things that others might not.” It is about believing that you are on the road to success during times when others’ emotions are getting the better of them.

It doesn’t really feel there is any real difference between winning on the sports field and winning in the investment world. Look, I am no expert on sports psychology, but most of the reading I have done on the subject has drawn my attention to the fact that the same methods used to control your emotions on the sports field, can actually be applied to the management of your investment portfolio, especially during turbulent times such as those we have been experiencing over the past few years.

But what causes people to allow their emotions to get the better of them?

Fear of failure

Our fear of failure is driven by our intense desire to WIN, sometimes to such an extent that it affects our ability to sleep. It came as no surprise to me that within 48 hours of Formula 1 Mercedes boss, Toto Wolff’s announcement that Valtteri Bottas had to perform very well if he wants to remain part of the Mercedes team next season, Bottas couldn’t even finish the race and only crossed the finish line in eighth place a week later, while his team mate won the race in the same car. This fear of failure caused Bottas to act too tentatively or defensively, rather than to be free and in control. When we apply this principle to our investments, it shows us that if you live in constant fear that an investment will fail, you are likely to make mistakes in managing it.

Social acceptance

Many of you may wonder what on earth social acceptance has to do with investments. Well, A LOT! Just before the Cricket World Cup this year, Dale Steyn labelled the term “choker” as nonsense, while admitting that the term did, in fact, apply to some players who found themselves in tough conditions. The fact remains that if the public and media calls you a “choker” enough times, that pressure is likely to have some impact on your game, especially when it gets tough. The important thing to learn from this, is not to listen too much to what the critics are saying, especially if you have done your homework properly right from the get go. Rather ask your critic why they are not yet enjoying their cleverly earned wealth in a hammock on some exotic island, if they know so much better than you?

Irrational beliefs

If Ernie Els were to tell himself that he is going to miss the hole every time he has to putt, chances are that he is likely to miss the hole. The same goes for your investments. If you have done your homework prior to investing in your chosen share or fund, you have to believe that it will pay off. If you keep believing that you made a mistake, your emotions will eventually get the better of you.

Mistakes are inevitable

By sticking to the above example, let’s suggest that Els ends up missing the hole due to a small error on his part. Does that mean that the next time he finds himself on the putting green, he should forfeit the match? Of course not. Another thing that investors and sportsmen and women have in common, is the fact that they have all made many mistakes, but they should all learn from those mistakes and use the information to better themselves in order to ultimately become the best of the best.

Perfectionism

Many professional sports personalities will admit that they are often their own worst enemy. If things do not go according to plan, emotions can get the better of them very quickly.  But realistically speaking, we know that no one is perfect. In the same way that sports contenders can succumb to their own perfectionistic expectations, investors too can suffer the same fate when market conditions are not what they expected. But just as sports contenders have to find the balance between confidence and the fact that they have to accept that things won’t always go according to plan, investors have to compensate for the fact that in the investment world, things often won’t go according to plan either. In the investment world, diversification is your best defence and your best at “winning”, as opposed to placing all your eggs in one basket and hoping for the best.

We know one thing for sure, and that is that our markets are volatile and things may not turn out according to your expectations over the short term. Very few sports stars become successful overnight, and so too very few investors become extremely wealthy overnight. But if you have done your homework properly and you have faith in your investment decisions, you should eventually reap the rewards of your hard work (and patience).


The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. These opinions do not constitute advice.  This is intended as general information and does not form part of any financial, tax, legal or investment related advice. Although the utmost care has been taken in the research and preparation of this blog, no responsibility can be taken for actions taken based on the information contained in this blog. Since individual needs and risk profiles differ, it is always advisable to consult a qualified financial adviser before taking action.

 

Schalk Louw
As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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