I always enjoy watching tennis – especially Wimbledon.
Whilst watching the Serena Williams v Heather Watson match at this years championship, I got to thinking about the issue of the unforced error in a tennis match. This part of the game is not unique to tennis, but is particularly relevant when you consider the gladiatorial, one-on-one nature of the sport.
A forced error is where one player hits a good shot, putting the opponent into a tight spot, hence ‘forcing’ the error, and thereby winning the point. An unforced error is where a player loses a point by making a mistake in a situation where they should be in full control – a double fault is the clearest example. The percentage of unforced errors wins points, games, matches and ultimately championships.
The clearest similarity with unforced errors and investing is when investors sell out of their investments during periods of market uncertainty when values drop. All investors know that this is the wrong thing to do in these circumstances, but unfortunately some can let their stomachs take over and rule their head when markets are tumbling and there is a lot of bad news.
This is an unforced error, because very often they don’t actually need the money, they just cannot cope with the situation they are in and they decide to sell to cash. It is also an unforced error as the market return is there on offer, and we know that given time, markets will recover, no matter how bleak the current situation is. If they have a well-thought out investment strategy with enough fixed income to limit losses they should be able to stay the course and not needlessly lose their hard-earned money.
At Callisto, we encourage all our clients to stick with their financial plans, invest for the long term and not to panic during market uncertainty.
Whilst such uncertainty like the recent troubles in Greece, and the potential fallout to stock markets should they exit the Euro is hard to deal with, let’s not have any unforced errors.