This is the title of an essay and a book by one of the most prominent minds in finance. Just google it to read the original text. I will provide a brief summary here.
In this world, there are two types of games being played. Winners' games and Losers' games. In winner's games, the winner wins through his own actions. In loser's games, the winner wins through his opponents actions. The usual example to illustrate this is tennis. There are actually two type of tennis being played in the world, as observed by some hotshot coach. Amateur tennis and professional tennis.
Professional tennis is a winner's game. Federer wins by delivering the ace that nobody can counter. Or that smash, or whatever. The winner wins through his own actions. In amateur tennis, usually Ah Lian wins by doing nothing. Why? Bcos Ah Beng tries to deliver the ace or that smash to Ah Lian but the ball goes out-of-bounds. Ah Lian wins bcos Ah Beng keeps doing silly things when he is not up to it.
According to the original author: professional golf is also a loser's game. The winner wins by playing it right and let their opponents hit bunker or sand or whatever. But Tiger plays it like a winner's game. Hit bunker but comes back spectacularly and ends with a birdie. That's why everybody loves him!
And finally, the core of this post. What is the biggest losers' game in town? Yes, that's investing. Investing is a loser's game. How do you beat the market?
First, you cannot make silly mistakes. In all loser's games this is the first criteria. You cannot try to be like Federer. Play it safe. do the boring parry. In investing it means don't buy on rumour, don't try to do that punt bcos it dropped 50% in one week, next Monday sure rebound one! Or die die do 2 trades every month to meet that stupid broker quota to save a few dollars on overseas stock deposited at the broker. These are like Ah Beng trying to be Federer. Well unless you ARE like Federer, ie you can trade damn well and earn these quick bucks with 99% success rate, like legendary traders Baruch, Livermore. If so, then ermmm why are you reading this post, you should already be a Big Swinging Dick trading big bucks and writing your own blog! Well, I'm flattered anyways.
Second, you only beat the market when it makes mistakes. Alas, the market don't make mistakes. The market is always right, remember? Well the market is right until the time horizon where all the participants can see what's going on. E.g. the market fell 50% this year as all the participants can only see the severe recession coming in 2009. Nobody knows what's gonna happen after that. If we don't go into the 1930 Great Depression scenario, global economy will bounce back in 2010, 2011, 2012, who knows. But when it does, solid co.s like Coca Cola, Canon, LVMH will continue to grow. So that's one way to beat the market. Sometimes, the market does some obvious mistakes. Like mkt cap of Citigroup going lower than the combined mkt cap of Sg 3 banks. Unless C is going under, this should not happen. And after Lehman went down and create this mess, will the authorities let Citi go down? So in such rare occasion, you can beat the market. But by and large, market don't give you that many chances.
So the conclusion: don't trade, play it safe, and according to the author, who is a strong supporter of indexing, buy indices. Buy the STI ETF, or the S&P500 or the Hang Seng. It's futile to beat the market, so just earn market return.
In this world, there are two types of games being played. Winners' games and Losers' games. In winner's games, the winner wins through his own actions. In loser's games, the winner wins through his opponents actions. The usual example to illustrate this is tennis. There are actually two type of tennis being played in the world, as observed by some hotshot coach. Amateur tennis and professional tennis.
Professional tennis is a winner's game. Federer wins by delivering the ace that nobody can counter. Or that smash, or whatever. The winner wins through his own actions. In amateur tennis, usually Ah Lian wins by doing nothing. Why? Bcos Ah Beng tries to deliver the ace or that smash to Ah Lian but the ball goes out-of-bounds. Ah Lian wins bcos Ah Beng keeps doing silly things when he is not up to it.
According to the original author: professional golf is also a loser's game. The winner wins by playing it right and let their opponents hit bunker or sand or whatever. But Tiger plays it like a winner's game. Hit bunker but comes back spectacularly and ends with a birdie. That's why everybody loves him!
And finally, the core of this post. What is the biggest losers' game in town? Yes, that's investing. Investing is a loser's game. How do you beat the market?
First, you cannot make silly mistakes. In all loser's games this is the first criteria. You cannot try to be like Federer. Play it safe. do the boring parry. In investing it means don't buy on rumour, don't try to do that punt bcos it dropped 50% in one week, next Monday sure rebound one! Or die die do 2 trades every month to meet that stupid broker quota to save a few dollars on overseas stock deposited at the broker. These are like Ah Beng trying to be Federer. Well unless you ARE like Federer, ie you can trade damn well and earn these quick bucks with 99% success rate, like legendary traders Baruch, Livermore. If so, then ermmm why are you reading this post, you should already be a Big Swinging Dick trading big bucks and writing your own blog! Well, I'm flattered anyways.
Second, you only beat the market when it makes mistakes. Alas, the market don't make mistakes. The market is always right, remember? Well the market is right until the time horizon where all the participants can see what's going on. E.g. the market fell 50% this year as all the participants can only see the severe recession coming in 2009. Nobody knows what's gonna happen after that. If we don't go into the 1930 Great Depression scenario, global economy will bounce back in 2010, 2011, 2012, who knows. But when it does, solid co.s like Coca Cola, Canon, LVMH will continue to grow. So that's one way to beat the market. Sometimes, the market does some obvious mistakes. Like mkt cap of Citigroup going lower than the combined mkt cap of Sg 3 banks. Unless C is going under, this should not happen. And after Lehman went down and create this mess, will the authorities let Citi go down? So in such rare occasion, you can beat the market. But by and large, market don't give you that many chances.
So the conclusion: don't trade, play it safe, and according to the author, who is a strong supporter of indexing, buy indices. Buy the STI ETF, or the S&P500 or the Hang Seng. It's futile to beat the market, so just earn market return.
Hi,
ReplyDeleteJust in case your interested. Below is a follow up link to an article relevant to your post. In the article I also include a link to the original document.
http://www.simoleonsense.com/the-losers-game/
best Regards,
Miguel Barbosa
Hi Miguel,
ReplyDeleteThanks for the link!