In his lesser-known yet fascinating book, “Extraordinary Tennis for Ordinary Players,” scientist and statistician Simon Ramo presents an insightful perspective on tennis, distinguishing between the sport as played by professionals and amateurs.
From an outsider’s view, the game appears uniform. Competitors follow the same rules, use the same courts, and even sometimes wield similar rackets. At its core, the fundamental aspects remain consistent.
Yet, Ramo notes a distinct difference in how points are accumulated. Professionals aim to earn points through a combination of precise skills—maneuvering, controlling, and spinning the ball with finesse. Each match is a tight contest of near-perfect plays, where the winner often prevails by mere centimetres.
Amateur tennis presents a stark contrast. Extended, powerful exchanges are rare, as players frequently commit errors. Balls are routinely knocked into the net or sent flying beyond the boundaries. Moreover, double faults occur almost as often as regular faults, highlighting the less polished nature of the game at this level. This frequent inconsistency underscores the primary challenge for amateur players: managing and minimizing mistakes.
This distinction underlines a profound philosophical shift from merely striving to win to strategically playing not to lose.
According to Ramos:
“The amateur duffer seldom beats his opponent, but he beats himself all the time. The victor in this game of tennis gets a higher score than the opponent, but he gets that higher score because his opponent is losing even more points.”
The conclusion Ramos drew for amateurs to win was a strategy of avoiding mistakes: play conservatively and keep the ball in, letting the opponent have plenty of room in which to make errors and capitulate.
The phenomenon of the ‘loser’s game’ can be observed everywhere. In chess it is the amateur who blunders and loses all his pieces. In investing it is the amateur who doesn’t know their circle of competence and makes enough mistakes to suffer disastrous permanent capital loss.
This brings to mind quotes from Warren Buffett and Charlie Munger.
Buffett:
“How do you beat (chess champion) Bobby Fischer?” You play him at any game but chess. I try to stay in games where I have an edge.”
Munger:
“Knowing what you don’t know is more useful than being brilliant”
It requires a great deal of self-awareness and humility to acknowledge your own limitations, albeit that is what is required in order to know how to play games you can win.
Humans, by nature, are overconfident beings. We are also enterprising. And when you combine enterprise with overconfidence, especially in domains involving large and asymmetric payoffs like investing, you find people venturing out into areas they have no competence in and playing games they know little about.
In investing, specifically, this involves pouring hard earned savings into businesses or industries one has no experience with. Or jumping into stocks due to a tip rather than research. Or indulging in derivatives where the stakes can easily wipe out the uninitiated. Or borrowing money to invest in stocks due to the fear of missing out.
Being humble enough to admit you might be an amateur allows one to invert the situation and take advice from Ramo: rather than trying to win and beat professionals, we should focus on avoiding losing.
If you don’t understand SaaS or biotech stocks, don’t invest in them. If you don’t understand derivatives or cryptocurrencies, avoid them. If you don’t know with certainty where stocks will go (nobody knows that), don’t borrow to invest. If you cannot analyse businesses, don’t pick individual stocks.
In fact, many of history’s greatest investors developed their strategies and philosophies from a simple vantage point that is often overlooked: how to not lose. Warren Buffett’s number one rule is “don’t lose money” (and rule number two — DON’T FORGET RULE ONE). Buffett is infamous for sticking to where he has an edge and throwing opportunities in his own “too hard” basket, for example his omission of Google in 2009.
Investors who concentrate on areas within their expertise and leverage their strengths are positioning themselves for consistent, long-term gains.
It bears repeating, though it may seem repetitious: compounding is essentially returns to the power of time. Time acts as the critical multiplier, and the key ingredient in most substantial fortunes isn’t merely high returns; it’s resilience and duration.
Contrary to what one might expect, investors often enhance their lifetime investment outcomes by prioritising self-awareness and avoiding significant losses.
To capitalise on this approach, engage in behaviours where your chances of success are highest.
That is, choose battles you can win.
