It is Australian Open time again and the world’s attention focusses on Australia’s very own Grand Slam Tennis Tournament. Happily, with Covid restrictions much less this year, we will see a blockbuster tournament. May the best players win.
One of the things that excites us about the Aussie Open is that tennis and successful money management have a lot in common. This is especially the case in grand slam tennis, which is much more of a marathon than a sprint.
One of our favourite stats in tennis is ‘unforced errors.’ These are errors that a player makes – hitting the ball either into the net or out of the court – that cost them a point. They differ from ‘forced errors,’ where the good play of an opponent win costs a player the point. Unforced errors is one of our favourites mostly because the best players are the ones with the fewest unforced errors. This tells us that the very best players succeed because they give up so few points.
Giving up few points makes it much harder for an opponent to win points, games and ultimately the match. Also, because they deprive their opponent of ‘cheap’ points, players with few unforced errors. ‘stay in’ a match for longer. This gives them more time to accumulate their own points and thereby win the match.
To win a set of tennis, a player needs to win at least 24 points (four points a game). They usually need to win more than that, because they have to win each game by two points and their opponent will often win multiple games in the set. But 24 is the minimum. You cannot win a set in a Grand Slam tournament without winning at least 24 points.
At the same time, players need to prevent their opponent winning 24 points. It stands to reason that the longer it takes my opponent to win 24 points, the more chance I have of winning 24 points first – and winning the set.
(And this is just for one set. Female players have to win two sets and males have to win three).
In summary, making few unforced errors gives players more time to win their own points. This has so much in common with successful money management! Just like in tennis, when it comes to investing more time is a good thing. Time lets an investment accumulate much higher returns. The earlier you start investing your money, and the longer you maintain your investment, the better the outcome usually is.
This is why an unforced error that sees you lose money can be so bad for your finances. Not only do you lose money, but you lose the impact that time invested will have on that money. This is why master investor Warren Buffett emphasizes that there are really only two rules of successful investing. They are:
- Rule Number One: Don’t Lose Money;
- Rule Number Two: Never Forget Rule Number One.
For Buffett, losing money is the ultimate unforced error. Lost money needs to be replaced, and this shortens the time horizon over which a person can accumulate wealth. It becomes much harder to generate higher returns if you have to replace lost capital at any stage of the investment process. Just like it becomes much harder to win 24 points if you give away free ones to your opponent along the way.
The beauty of investing is that so many of the most common unforced errors are easy to avoid – as long as you know what you are doing. And this is the part of our role that we really like: putting our ‘coach’ hat on and helping our players – our clients – improve their investing game by reducing or eliminating unforced errors.
So, as these champion players from all around the world work their way around Melbourne’s centre court, why not get in touch and let us help you improve your investment game – while chatting about the tennis too, of course!