I’d like to tell you how I—almost purely by accident—turned a bunch of normal sixth grade boys into an incredible soccer team.
In a ritual certainly repeated all over the country, at the beginning of the season, our soccer association distributes jerseys to hand out to our team. But that particular year, instead of just putting the kids’ names on their jerseys, I told them they could—within the limits of decency and shirt size—put whatever they wanted on the back.
Which is how I ended up with LOLFACE, BUBBA, CHEESE, MMMBACON. A-A-RON and ERIC on my team. (Eric didn’t fully understand the assignment. Alas.)
Frankly you haven’t lived until you hear an opposing coach instruct his players to stay closer to MMMBACON.
In this particular year, I was given two extra jerseys. I decided at the last moment to have the printer put NAILS on the back of one and RELENTLESS on the other. The NAILS jersey would be worn by the player who played his best game, and RELENTLESS would be awarded to the player who did best in practice. I’d award the jerseys at the end of the last practice of the week.
These boys had more or less been randomly assigned to me, so while our team was blessed with some skillful players, those skills should have been more or less distributed across the league.
Our team lost one game in the regular season, and beat the team to whom they’d lost in the league final. The difference, I am convinced, was my team’s level of concentration.
Each practice, because of those jerseys, I had my team’s complete, undivided attention. And in games, all I’d have to say beforehand was something like, "Make leading passes, maintain your width, always follow shots," and they’d go out there and just do it.
You’d think Sir Bobby Robson had come up with the tactics for each game.
Maybe it was kismet, but by leaning into a happy accident I managed to transform a group of sixth grade boys into mentality monsters.
I love soccer, in no small part because while luck plays such a massive role in each individual game, over the course of a season, quality and mental strength generally win out. Does that sound like anything else you know?
If I were to make up a formula for success in soccer, I’d make it something like this:
1/x(luck) + skill + mentality
where X = number of games played.
So in a single game, luck (a ball bounces directly to a player who scores, a 50/50 call goes against you, a goalie guesses the correct direction) can be the difference between a good result and a bad one.
In fact, there are incredible examples of soccer matches where a team that had been statistically dominant manages to lose. One of the strangest is a February 2022 match in which Brighton possessed the ball for 75 percent of the time, outshot their opponents 25 to three, and still lost to Crystal Palace.
When Roy Hodgson, Crystal Palace’s polyglot Saul Bellow-reading manager, was asked about the match, he refused to apologize for the loss. And why should he have? He’d managed more than 1,100 games at that point, and played in many more.
He knew this—the more instances you play, the less luck defines your outcome. Mentality and skill become transcendent.
I ask again. Does that sound like anything else you know?
I bring up the example of my soccer team because the mentality needed for success in any realm is largely innate, but it also comes down to culture and environment.
Investing is a fertile ground for participants to develop a form of impostor syndrome, simply because the terms of success are so absolute (is your portfolio up or down?) while the mechanics of success or failure are consistently granted with a huge dose of randomness.
What’s worse, stock price movements treat each participant the same. If you’ve dedicated hundreds of hours to a deep understanding of a company, and I, on the other hand, pulled tiles out of a Scrabble bag, we get the exact same return even though one of us deserved the outcome a heck of a lot more.
In fact, there’s a lot of academic research on this, primarily in the realm of the Efficient Market Hypothesis, which suggests trying to pick individual stocks as being a waste of time.
So why, then, do certain investors win, if not consistently, then eventually?
My observation is that the markets aren’t fully efficient, only mostly efficient, and that those who have a realistic yet autodidactic view toward investing can apply their skills to generate pleasing results. The other required characteristic is a proper mentality. And Mr. Miyagi of Karate Kid will tell you that this can be learned. "No such thing as a bad student, only bad teacher."
I’ve gotten to witness this principle in action throughout my 26-year career, both in the publishing arm of The Motley Fool, LLC and at Motley Fool Asset Management. We call it "Foolishness," and while it has a fairly nebulous meaning, it manifests itself in a very practical way: We must analyze companies with unconventional thinking.
Foolishness embraces the theory that, since almost all value in investing is based upon things that have not happened yet, we will be wrong—and maybe even more importantly, seem wrong—an awful lot. In my 26 years working in various roles at The Motley Fool, LLC and Motley Fool Asset Management family of companies, I have never, not once, seen one of my fellow investors be held responsible for a bad investing outcome.
The reason we operate this way is pretty simple, even if it is counterintuitive. Good outcomes come from good processes, but in domains with a huge amount of randomness, a good process cannot guarantee a good outcome on any one decision. Focus too intently on an individual outcome, or a single quarter, or any smaller increment for which an extrapolation of skill can easily be taken, and those who are being judged on this basis will almost inevitably adjust their process as a result, instead of trusting in the long-term success of that process.
It’s why so many actively-managed funds can track so closely to their benchmarks, and why holding onto stocks that go through their inevitable periods of uncertainty is so darned hard to do. No one wants to be seen holding onto an Enron as it collapses. Everyone wants the glory from holding Amazon.com*. But I ask you: when Amazon was down 91 percent from its highs, what was the difference?
The value of investing with Motley Fool Asset Management comes from that culture of Foolishness. It’s a culture that breeds mentality monsters through consistent encouragement of non-conventional thinking, but with a deep respect for the fact that conventional wisdom has a pretty good track record too.
Ultimately electing to buy individual equities, or choosing to invest with any asset manager, stems from a belief that doing so offers a probability of some superior outcome to doing the conventional thing. The primary question in doing so is whether your investment choice is exposing you to sufficiently positive skill—plus mentality—to provide with a reasonable chance of outperformance.
My advice is to look for people whose culture matches what they claim it to be. All the better if you spot one of them wearing a RELENTLESS shirt.