Monday, July 7, 2008

What you can learn about contrarian investing from a great tennis player

While watching the epic Wimbledon final between Nadal and Federer on TV late Sunday night, I was disenchanted by the number of viewer polls popping up about “The King of Wimbledon” and “The Greatest tennis player”. None of these polls mentioned the name of arguably the best player ever – Rod Laver.

Sampras, McEnroe, Federer haven’t won at Roland Garros. Borg never won the US Open. Lendl and Rosewall never won Wimbledon. A handful of players have won all four majors in their career. Only two have won grand slams – all four majors in the same year – Budge and Laver. Only Laver has won the Grand Slam twice – once in 1962 in the amateur era and once in 1969 in the Open era. The defence rests.

So what does Laver have to do with investments? In his book, “The Education of a tennis player” Laver writes about his attitude at Wimbledon – a tournament frequently interrupted by rain and blustery winds. He used to put on his whitest and starched pair of shorts and shirt, was well-groomed and used to jump up and down with enthusiasm – as if the cold and rain was just the kind of weather he enjoyed. Far from it. It was specifically meant to demoralize the opponent, who was already feeling miserable in the inclement weather!

Contrarian investing is not about selling at the market top and buying at the bottom, nor is it about buying realty stocks when every one is dumping them. It is about developing a mindset that prevents you from getting swayed by what is happening in the market on a daily basis. It is about making an asset allocation plan and sticking to it. It is about ignoring all the buy calls given by so-called experts.

Most important of all, contrarian investing is about making an investment plan based on your knowledge and risk tolerance, and having the self-discipline to stay with the plan through the ups and downs of the market. But all this is common sense, isn’t it? You will be amazed how uncommon it is amongst the bulk of the investors!

In future posts, I will discuss about stock selection and making an asset allocation plan.

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