FIFA World Cup Football is back. Every four years, 32 teams compete for the title over a period of a month. This time Russia is hosting the World Cup and luckily we will get to watch it at convenient times.
The World Cup football field is typically 360 feet long and 200 feet wide. Football is played by a team of 11 players – GoalKeepers, Defenders, Mid-fielders and Forwards, who play in different positions, have different responsibilities and hence require different skills. The way football is played has strong resemblance with how one is required to ‘play’ the stock market. The ball moves from one end of the field to the other just like the market. At one end the team is required to prevent a goal while at the other end it is required to score a goal. How the team is built, the player selected is critical for success just like in stock investing. And it’s here that the similarity is illuminating.
We can draw direct analogies from how the players in a football team perform different roles and identify stocks that would play the same role in our portfolios. No football team can win with only Defenders and nor can they win with only the Forwards. Football and Stock Investing both need a judicious combination.
Who are the Forwards?
Forwards are aggressive players responsible for scoring goals and not responsible for defence. Likewise, in portfolio high growth companies increase wealth in less time (scoring goals) but they don’t play defence role meaning they can lose money as well sometimes. They are typically small cap companies with a robust business model. When the ball is in closer to the opponent’s goal-the economy and the market is growing pretty fast, it is the job of the Forwards to score. However, when the ball is in their own half-tough economic or market conditions, Forwards do not have much of a role to play. They move back to the centreline-drop in prices and/or performance and wait for the ball.
Who are Mid-Fielders?
Mid-Fielders pass the ball from defenders to forwards and also take possession of ball from opponents. They have pace and more stamina than other players-they also run the most. In portfolio, it means the companies that are well established/strong (stamina) and still growing at above average rates (pace) tend to have similar characteristics like Mid-fielders.
Who are Defenders?
Defenders are ones who defend their own goal and stop opponents from scoring a goal against them. Their job is to prevent the march of the opponents towards their goal by tackling them and once they have the ball to keep it within themselves, progressing slowly till the mid-fielder and forwards are in position. In a portfolio, companies that have stable (not high, nor growing fast) earnings year after year even in tough economic conditions and may also be paying out high dividends resemble defenders.
Who is a GoalKeeper?
Goal Keeper is the one who protects the goal post and prevents an opponent from scoring a goal. On many occasions he is the last and only player to prevent imminent loss. To protect a portfolio against loss in case market conditions are adverse, we need to park money in assets which don’t carry risk of value erosion and can be liquidated immediately without affecting the price.
A portfolio must consist of all the above categories of stocks and funds. Together they will help you win the match of reaching your financial goals.
We have created special pages on our site to do this. Currently, only registered users will be able to access and see the stock ideas in all of the categories. They can also select players from the various lists and check how their team would have performed in the last 8 years and thus learn what it takes to build a well-diversified portfolio. The companies included in each list have been carefully selected to play like a winner in the coming years. So you can enjoy applying the wisdom of football to stock investing and get real ideas to build a strong portfolio.