I’m struggling to focus on work today, and, for once, it’s not the dreaded writer’s block. I have a ticket in my wallet for a football match tonight, and not just any match, but Aston Villa versus Bayern Munich in the Champions League.
For Villa fans, it’s going to be one of those “I was there” moments. My son’s flying in from Stockholm especially.
To be honest, I still can’t believe it’s actually happening. It’s 41 years since Villa last played in Europe’s premier club competition, and 42 years since we stunned the football world by winning the darn thing — with a one-nil win (again tonight’s opponents appropriately), thanks to a fortuitous bounce off a divot and then the right shin of striker Peter Withe.
I was a regular at Villa Park in those days, as I am today, and I remember 26th May 1982 as if it were yesterday. My first game was a two-nil over Bristol City in January 1975 (yup, I really am that old). It was my grandpa who used to take me. He died a few days before the semi-final second leg against Anderlecht in ’82, and, heartbroken, I stayed at home and then watched the final in Rotterdam on TV.
One of my standout memories from the time was the cup being stolen a few days later. My dad was a teacher at a local special school. One night, two of the Villa players took the trophy to a pub in Tamworth. One of my dad’s ex-pupils saw it, and, in a moment of madness, put it in the boot of his car and drove off. The police eventually found it in a house in Sheffield. It was only a few years ago that the story came to light.
Close similarities
Anyway, what has all this got to do with investing? I’ve always felt there are close similarities between investing and following a football team.
Just as football teams experience seasons of triumph and failure, investors encounter market booms and downturns. Villa’s European Cup win was followed by a severe decline. Five years later they were relegated from the old First Division. Bear markets can be just as dramatic and last just as long.
Often the highs and lows come in quick succession. A football fan can celebrate an exhilarating win one week and then have to endure a crushing loss the next. It’s the same for investors. Just think back to the volatility we saw in the summer. The Japanese stock market fell 12.4% on Monday 5th August, but then rose 9.3% on Tuesday 6th.
We’ve written many times on this blog about the behavioural biases that afflict investors. Football fans are prone to just the same effects They include optimism bias (as Gary Lineker likes to say about supporting England, it’s the hope that kills you), recency effect (you’re only as good as your last result), and loss aversion (the pain of losing is twice as intense as the joy of winning, except when you lose to your local rivals, when life can be barely worth living).
Tendency to overreact
One of the biggest behavioural challenges fans and investors face is the tendency to overreact. Fans often make snap judgments, calling for managerial changes or criticising players after just one bad game. Investors, too, can fall into the trap of panic-selling during a market downturn or impulsively chasing after the latest “hot” stock, fund or theme.
Overreacting causes us to lose sight of the bigger picture, and can lead us to make poor decisions, like bailing out in a market downturn or deciding to support Manchester City. The lesson is to avoid knee-jerk reactions, and to maintain a sense of calm and a long-term perspective.
I’m often struck by how football managers today are able to remain so composed when interviewed after a defeat. They may have every reason to lose their cool, like Kevin Keegan famously did in a post-match rant in 1996, and yet they generally manage to stay remarkably level-headed.
So how do they do it? The main reason is that top clubs now employ behavioural coaches to work with managers and players. Clubs realise the importance of maintaining psychological focus throughout the season and taking inevitable setbacks on the chin, whether that’s losing in the final minute or being on the wrong end of a controversial VAR decision.
Triumph and disaster
Investors need to possess that same emotional resilience. In the words of Rudyard Kipling, they need to “meet with Triumph and Disaster and treat those two impostors just the same.” And, if they struggle to do that on their own, they should hire a financial adviser to act as a behavioural coach.
Investing and supporting a football team are, or at least should be, lifelong activities. The key is to enjoy the good times when they come, and endure the bad times. No, the journey will often be uncomfortable, but, if we do it properly, we have no choice but to stay the course.
Of course, beating Bayern would be amazing. But, in the great scheme of things, it’s one more match, and there’s the little matter of Manchester United at home on Sunday. Win or lose tonight, I’m jolly well going to enjoy it.
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