When you think about it, protecting your assets and trying to make gains is no different than a boxer trying not to get hit and winning a fight. Foremost, the focus is on protecting the most vital and vulnerable parts of the body. Surprisingly, that can be achieved with relative ease, given proper training, technique and the appropriate movement of the hands. Same goes for protecting your money, all you have to do is not take risk. But of course, we can’t just defend: the objective of the boxer is to win and for an investor it is to make money, at least more than inflation.
So, what can we learn from the mind of a boxer and the inherent ability to process, react, and counteract to so many different things coming from anywhere, anytime and with potentially devastating consequences if you get it wrong?
Playing the numbers – There is a big difference between getting into a scruff at your local chippy and a trained boxer. A fighting novice will only ever think about the next punch that either floors the opponent or oneself. The trained boxer can protect himself and therefore isn’t worried about one punch, he is thinking about the next three or five punches as part of an overall strategy. That makes it a completely different ball game and it is not for nothing that professional boxing bouts have been compared to some of the great chess matches of our time. It’s all about making the right moves, usually in a combination that has been shown to be successful in the past. It’s about playing the probabilities, just like we do in our portfolio management. Our ability to quantify risk and sizing our bets on things where we think the odds are in our favour is akin to the boxer, who waits for the defence to drop just a little, before delivering a knockout punch.
You need a good offense – Clearly, just waiting for someone to hit you is not a good strategy for the long term. Therefore, the boxer must look for opportunities to try to hit the opponent. It is surprising how obvious the conclusion to our portfolio construction comes from this very basic take-away. In order to win, you have to take risk and holding assets that don’t make any money is not a good idea. In today’s low interest rate environment, this has never been truer. It is surprising how many people continue to leave their money in cash at the banks or in bonds that even have negative interest rates (!), all in the mistaken belief that safety is all that matters. With inflation eating away at our capital, there is actually more risk in doing nothing than trying to make money.
Be patient – Very rarely is a fight won with one punch and therefore, we should also stop looking for that one trade, that deal of the century that will make all of our dreams come true. It is said, that 50% of a boxing bout is fitness. And for anyone who has ever gone 3 minutes in a ring with a trained boxer will understand the war of attrition that is taking place. With every punch, every minute and every round, this battle intensifies and as batteries are drained, opportunities lurk. And that’s when you take your chances. Waiting for opportunities to present themselves is one of the great virtues in both boxing and investing. The ability to execute when the right time comes is priceless.
I would venture to guess that if you compared the mind of a professional boxer with the fastest, most powerful super computer on the planet, it would be a very unfair fight. Both can crunch countless probabilities in an instant and both are capable of deploying highly sophisticated chains of commands and movements, as part of a highly focused objective. But only one of them actually gets hit when they are wrong, which is why I trust the decision making of the boxer much more than I do that of a machine. When there are (real) consequences at stake, it matters more and so the next time you think about your portfolio allocation, ask yourself: what would Wladimir Klitschko do?