The recent documentary on Sir Alex Ferguson was entertaining, insightful and, perhaps surprisingly, highly relevant for all investors. That’s because the former Manchester United manager was able to exert a level of control at the club which is rare in modern day football — he was in charge of almost every decision made regarding recruitment, tactics, logistics and everything in between. He even decided the suits the players wore when travelling to and from games.
Total control
Being in control was clearly beneficial to him, with Manchester United dominating the Premier League since its inception. Of course, being in control was not easy and it sometimes meant heated arguments with players who stepped out of line, and even being forced to sell key players who Ferguson felt compromised his ability to control the dressing room. In other words, being in control was more important to him than simply having the best players or, in fact, anything else.
This has a parallel with investing, since the most successful investors are usually those who can exert the most control. That’s not control over the companies they invest in, the market, other investors or in future events. It’s control over themselves and, more specifically, their emotions.
For example, at the present time most investors are feeling somewhat nervous. The FTSE 100 has fallen by over 10% since reaching its all-time high of 7,100 points in April and, looking ahead, there is a considerable degree of uncertainty regarding Chinese growth prospects as well as US interest rate rises. Both of these factors have the potential to act as a brake on global economic growth and could even push the world economy into a short-term recession.
Clearly, no investor can control whether or not this takes place, but all investors can control how they react to it. For most, now is a time to either hold position or sell up, since the fear of losing money in the short term is their dominant and guiding emotion.
Don’t be ruled by fear
However, if they were able to regain control of their emotions and instead use logic to decide their actions, they may in fact choose to invest in companies that offer sound long term growth, are high quality operations and which are currently trading at discounted prices as a result of fear among their peers.
While short term losses are possible, investing when the future is somewhat uncertain tends to allow investors to ‘buy low’ and, at some future date (which may be years away), ‘sell high’.
Similarly, investing when the stock market reaches 7,000+ plus points and the future is a whole lot brighter may be a lot easier on an investor’s emotions than buying at the present time. However, it is far less logical because a great deal of the future potential for growth is already priced in.
Therefore, while the emotion of greed or fear of ‘missing out’ on gains may attempt to drive the investment decision, having control over these emotions could lead to improved investment returns in the long run.
So, while Sir Alex Ferguson is unlikely to have been contemplating his views on investing while lifting Premier League title after Premier League title, his ability to control Manchester United was a major factor in his success. If an investor can do the same thing with their emotions then they too can achieve a high level of success in the investing world.