The just-finished Australian Open had most spectators gripping the edge of their seats at times over its 14 days of play.
From the opening round, right through to the women’s and men’s finals, you could say the first Grand Slam tennis tournament of 2023 had it all.
Top-seed upsets, unexpected withdrawals, unforeseen events, and on-and-off-court volatility.
Throughout the event, the combinations of playing strategy, risk management, resilience and perseverance gave the tournament’s winners the decisive advantage over their opponents.
Interestingly, with a little bit of top spin, it’s not too hard to draw out some very strong parallels between tennis and investing, and there are some great lessons on how to become better investors.
Lesson 1: Know your strategy
Professional tennis players have a playing strategy in mind, even before they bounce the ball to play the very first point of a game.
In fact, they will have planned out and worked on their game strategy with their coach, over many months. They’ll make constant adjustments to their strategy, before and even during every match, to ensure they’re in the best position to outplay each opponent.
Having a strategy is vital in investing too. Without one, your chances of investment success are very low. You also need to be prepared to change your strategy whenever required.
Think about your short and long-term goals, your plan to achieve them and, most importantly, visualise what investment success means to you. Make your goals SMART (specific, measurable, achievable, realistic, and have a definite timeframe).
And, just like tennis players do in the playing sense, consider employing a financial adviser to act as your personal investment coach to help guide you with developing your strategy to realise your end goals.
Lesson 2: Be aware of the conditions
Playing conditions are fundamental in tennis. Think about things like the type and quality of the playing surface, lighting, temperature, wind, and other factors that may either be beneficial or detrimental to a player’s game.
They all factored into players’ performance and outcomes at the Australian Open.
Obviously investing involves different kinds of conditions that can impact returns, from macroeconomic factors down to more specific issues that can affect different markets and asset types.
Being aware of the conditions and how they may impact your returns over the short and long term means you’re well placed to make portfolio adjustments when needed.
This shouldn’t be done in reaction to short-term market events but undertaken as part of your regular portfolio reviews, which may require some rebalancing of your asset allocations so your portfolio remains aligned to your goals and risk appetite.
Lesson 3: Avoid making unforced errors
If you paid close attention to the Australian Open you would have noticed that many points were won and lost based on unforced errors.
Points (and often games and sets) are often decided by a player returning a serve or playing a shot into the net, when they hit their shots too wide or long, or by double faulting on their serve.
In the investment sense, a good example of an unforced error is a reactive investor who lets their emotions take hold by selling some or all of their portfolio holdings for the sole reason that markets have fallen.
As well as potential capital gains tax consequences, investors who sell during volatile conditions inevitably miss the boat when markets do inevitably rebound. Trying to time markets can be regarded as an unforced error with potentially serious repercussions and can easily be avoided.
Another common unforced investment error is not being diversified – having too many of your eggs in one basket. Poor asset allocation can leave you too exposed to one type of asset or sector.
Again, this is an error that can easily be avoided by investing into a well-diversified exchange traded fund or managed fund with a ready-made portfolio of shares and bonds.
Lastly, paying too much in investment fees is an unforced error that’s simple to avoid. Investment costs can make a significant difference to your long-term returns. And the lower your overall costs, the more money you get to keep.
Lesson 4: Play the long game
In a Grand Slam tournament, a player making it all the way through to the final will likely have played somewhere between 100 to 200 games across various matches just to get there. Some will have needed to play even more.
Multiply that figure across all the tournaments they participate in over the course of a year and the number of games played is easily in the thousands.
Then, take that number of games played over one year to next level and it’s not hard to work out that a top-level professional tennis player will play tens of thousands of games over the course of their career.
While their immediate focus is always on winning one game at a time, their aspirational goal is to have an extended playing career. They’re in it for the long haul, and the pool of prize money and endorsements earned along the way.
This lesson carries through to investing on many different levels.
The process of investing is ongoing. In the grander scheme of things, how you perform over the short-term isn’t as important as your long game.
It’s about keeping your eye on the ball at all times and having the discipline to stay the course so you have the best chance of achieving long-term investment success.
With investing, it’s better to keep the ball in your court.
The above material has been reprinted with the permission of Vanguard Investments Australia Ltd.