5 Ways Why Investing Is A Lot Like Football

By Mark Riddix, on October 5, 2010

Football season is now upon us. It’s the number one sport in the country. Millions of fans tune in every Sunday to cheer on their favorite team against their hated opponents. Did you know that you can apply a lot of football’s principles to investing?  It’s true. The two have a lot in common. The same principles that can make an athlete a great football player can make you a great investor.

Photo by Ed Yourdon via Flickr

The best offense is a good defense

Warren Buffett’s first rule of investing is to never lose money. His second rule is to remember rule number one. When investing, a good defense is more important than a good offense. Always be defensive. Invest to protect capital first and seek gains second. Too many people lose money chasing speculative stocks with the allure of high returns. You should look for growth but only after making sure that your capital is safe.

Know your opponent

Your biggest opponent when investing is your own emotions. Emotional decision making makes people exit great stocks too early. How many people sold out of positions in Goldman Sachs, General Electric, and US Steel during the March lows of 2009? Fear caused many investors to buy high and sell low during the market’s downturn. How many investors now wish that they had just ridden out the downturn?

Study your playbook

Just like football players have to study their playbook so that they know their game plan so do you. Doing your homework isn’t always fun but it’s essential to being a successful investor. Review company financial statements and pay attention to quarterly updates. You can tell a lot about a company by looking at the income statement, balance sheet, and cash flow statement. If you have time, listen to a conference call. You can learn exactly how a company is progressing by their answers to analyst questions.

Learn from your mistakes

One of the things that drives coaches crazy is when players make the same mistakes over and over again. This is especially true of rookie quarterbacks. Coaches can tell the Peyton Manning’s from the Ryan Leaf’s of the world by how they respond after a miscue.

The same philosophy holds true in investing. You can differentiate the great investors from the foolish ones by how they react to a mistake. For example, let’s say you made a mistake and lost money chasing a hot stock tip without doing a research. If you watch CNBC’s Mad Money a few weeks later and buy a stock just because Cramer recommended it, then you didn’t learn from your mistake.

Make halftime adjustments

Have you ever wondered how a team can look inept for the entire first half of a game and then come out like gangbusters in the second half? This is possible because teams make adjustments during halftime. They figure out where they made mistakes and adapt. Well, you have to do the same thing when investing. Are you too aggressive an investor? If so, then you need to add some more conservative assets to your portfolio. Are you too conservative? If so, then you need to add some high beta investments to your portfolio. Keep tinkering with your strategy until you find the one that fits you.

Are there any other football strategies that you know of that can be applied when investing?

Mark Riddix is the founder and president of New Horizons Financial Management, an independent investment advisory firm that provides personalized investing and asset management consulting. Mark is a regular contributor to Seeking Alpha and has written financial columns for Baltimore and Washington, D.C. area newspapers. Mark publishes his own financial blog, BuylikeBuffett.com and has written the ebook How To Make $2,000 A Month Online.

Add Your Question or Comment (6 Comments)

1. Jenna:

   October 5, 2010 at 1:59 pm

   Remember your teammates. Reach out out to others around you for insight and advice to improve your next play (or investment).
2. DIY Investor:

   October 5, 2010 at 5:26 pm

   The game isn’t over until the “fat lady sings”. People get excited when markets drop but that is a good thing if they are in the accumulation stage, i.e. systematically adding to their 401k. If anything they should up their contributions in down markets. The “fat lady” sings when they are drawing down their accounts, presumably in retirement.
3. Rob Bennett:

   October 6, 2010 at 6:26 am

   Coaches that ignore the percentages don’t last long. If you do not take valuations into consideration when setting your stock allocation, you have no idea whether the percentages are with you or against you.

   Rob
4. Andrea:

   October 8, 2010 at 11:29 am

   That’s what I love about this site…. it’s all put simply and finances (something that can be a particularly inunteresting topic) get compared to football! Fantastic.

   “Learn from your mistakes.” Best advice you could give anyone in finance or any other walk of life!
5. Mark Riddix:

   October 9, 2010 at 4:01 am

   @ Jenna Great points.
   @DIY Investors Excellent advice.
   @ Rob You have to play the percentages!
   @ Andrea Thanks!
6. John Diggers:

   October 11, 2010 at 9:11 am

   Great blog post. Some really interesting points.

   I was thinking for another point to make:

   ALWAYS expect the unexpected.