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Stock Picking – A Loser's Game

Mark Orr
February 1, 2024

I turned 47 recently and for my birthday, my wife Maxine surprised me with two Roger Federer branded Wilson tennis racquets. I suspect her motive was partly to see if my much touted high school tennis career was closer to fact or fib. Happily, this has launched an after-dinner tennis match or two with my 13-year old son, Daniel. If you can call hitting the ball back and forth in front of our dead-end street a tennis court then, I guess, you can call the whole thing a match. Unlike the recent French Open match between arch rivals Novak Djokovic and Roger Federer we can only sustain a 36-point rally by trying our very best to get the ball TO the other guy.

American physicist, Dr. Simon Ramo, was the first to connect tennis with investing. In his fascinating 1970 book, Extraordinary Tennis for the Ordinary Tennis Player, Ramo explains that tennis is not one game but two: the professional game where points are won by well-placed line shots and driving cross court forehands and the amateur game, where unforced net shots and double faults are all too common. You see, despite using the same equipment (remember my Federer branded racquet) and the same set of rules, I play a brand of tennis barely recognizable next to Roger Federer (I hope Maxine doesn’t read this).

In his book, Ramos came up with a novel way to score both professional and amateur tennis matches. He simply tracked whether a point was lost by an unforced error vs. won. He found that professionals like Federer mostly won points – 80% of the time. Conversely, amateurs (like me) mostly lost points, again about 80% of the time. The lesson here - take a sober look at the type of game you are playing. If playing a Loser’s Game, like amateur tennis, let the other guy try to overcome his lack of skill by heroically chasing down every shot and gunning for that cross-court winner. More often than not he will catch the net or hit it out of bounds. You can win, simply by letting the other guy beat himself.

As Charles Ellis points out in his groundbreaking 1975 article Loser’s Game and subsequent book, investing has a lot in common with amateur tennis. A study by Vanguard (Vanguard Case for Indexing-Canada June 2011) points to the uncomfortable conclusion that investing is also a Loser's Game. That is 80% of managers fail to outperform their benchmark1. Those that do, seem unable to keep their streak going (the reference to chance is intentional). In my opinion most investors would simply be better off holding a broad basket of stocks representing the entire market and doing so as part of an overall investment mix that they can live with, in up and down markets. After all, why be a hapless hero when you can win by not losing?

Mark Orr

Senior Financial Advisor
Aldershot Financial Group

Standard & Poor's Indices Versus Active Funds Scorecard (SPIVA® Canada) 2010: page 9
Vanguard Case for Indexing-Canada June 2011: page 4

This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above please make sure to see me for individual financial advice based on your personal circumstances. The opinions expressed are those of the author and not necessarily those of Aligned Capital Partners Inc. Aligned Capital Partners Inc. is a member of the Canadian Investor Protection Fund and is registered with the Canadian Investment Regulatory Organization (“CIRO”). Mark Orr is registered to provide investment advice and transact in securities products in the provinces of British Columbia, Nova Scotia, Manitoba, the Yukon and Ontario.

"Wall Street's favourite scam is pretending luck is skill."

Ron Ross, Ph. D. Economist

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