My knowledge of soccer is limited to “they call it Football” in the rest of the world. Nate Silver is a great writer and very smart thinker when it comes to probabilities. Throughout the World Cup, you need to read his 3,000 word articles to understand what scenarios are good or bad for the US soccer team. Sports shouldn’t be that complicated. Neither should investing.
At the start of the World Cup, there are 8 groups with 4 teams each. (If I am wrong on any of these points, it further bolsters my case). The number of scenarios for the US to advance out of its original group was….a lot. Each time I read one of Silver’s scenario article, I kept thinking to myself, this is too hard. I will wait till the end.
Investing is similar:
1. It shouldn’t be that hard.
2. When there are a lot of competitors, your odds of success as an investor are low.
3. Waiting till the end is best.
Take the food market. There are lots of competitors, one on each corner and almost every cook coming out of school or his mom’s kitchen wants to start the next Chipotle. Or go back in history to the rise of the car manufacturers. Try a quick Wikipedia search for “failed car manufacturers.” The list is too long to count.
These situations are like the Group stage of the World Cup, lots of probabilities and not my game.
Now we are at the end of the group stage. On Thursday, Germany and the US play against each other. If both teams play to a tie, they both “win” and advance. This is where investing is the easiest.
Investment situations like this are the easiest to predict. Two rational players, both acting in their self-interest will price their products accordingly and both remain dominant in their fields. These are not as difficult to predict as you might think. Moody’s and S&P, Visa and MasterCard, KAR and Copart (salvage vehicle auctions), Pepsi and Coke, Waste Management and Republic Services (trash collection). I am not saying that each of these businesses is great or that they are great investments. But, I would argue that it is much easier to predict outcomes when you have two large competitors that have a self-interest to act rationally in a market.
Competitive markets are much more exciting to watch, but horrible from an investor’s perspective. Let’s all hope that the match between Germany and the US is extremely boring where both teams do absolutely nothing exciting, except tie and advance to the next stage…