Learn to Invest Like FC Barcelona

Barcelona (in Unicef shirts) clashing with arch-rivals Real Madrid, 2009. Source Wikimedia Commons

Last month, an incredible streak was broken in international sports. In a soccer match against Spanish League adversary Rayo Vallecano, Futbol Club Barcelona walked off the field with fewer minutes of ball possession than their opponent for the first time in 136 games. The game (which Barcelona won 4-0 nonetheless) marked the first time in three years in which Barcelona, or Barca, as it is popularly known, did not win the battle of possession.

One of the world's elite soccer teams, Barcelona has enjoyed success that stretches across decades. While borrowing from different soccer philosophies, Barca's style and system are unique in the soccer world. The principles by which the team plays, moreover, translate well into the world of investing. Let's review four hallmarks of Barcelona's style that have parallels in that most unheralded of sports: long-term equity investing.

One-touch, two-touch

The Barcelona style is affectionately referred to by fans as "Tiki-Taka" soccer. Tiki-Taka is a Spanish onomatopoeic term roughly similar to "click-clack," the sound of the ball being passed crisply from one player to the next using only one or two touches.  This makes for remarkably efficient ball movement and furthers the primary obsession of possessing the ball. The Tiki-Taka concept maximizes ball sharing between players.

Outside game day, Barca players (whose average club salary would make any NBA owner reach for an Alka-Seltzer) relentlessly practice fundamental drills, some of which even preschoolers can emulate. In my personal favorite practice set, called "rondo," players form a small circle, and play keep-away from two chasers in the middle, using one-touch passes. While the speed at which the team moves the ball can resemble a Japanese pachinko game, the underlying premise is utterly simple.

Investing Parallel: Buy companies that structure themselves to exchange ideas quickly and fluently.
Susan Wojcicki, employee number 16 at Google (NASDAQ: GOOGL  ) and now a senior vice president of product management and engineering with the company, had this to say on idea sharing in an insightful article entitled "The Eight Pillars of Innovation:"

By sharing everything, you encourage the discussion, exchange and reinterpretation of ideas, which can lead to unexpected and innovative outcomes. We try to facilitate this by working in small, crowded teams in open-cube arrangements, rather than individual offices.

This past week, Google's share price crossed $1,000 on stellar earnings.This is due in no small part to the profusion of ideas that are monetized year in, year out at Google. Like the Barcelona rondo drill, companies that crowd teams together and share ideas quickly have an edge.

Keep possession of the ball

By passing the ball among themselves and denying the opposition touches, Barcelona mathematically reduces their opponent's chances to score. Hoarding the rock also wears down the rival side, until a designated assassin such as Lionel Messi or Neymar da Silva Santos Júnior (known simply as "Neymar") slices through the defense for the kill.

While some criticize Tiki-Taka as boring, it requires an immense amount of physical skill and keen decision-making to keep the ball within your team's possession, to say nothing of the reserves of patience the team draws upon until it is the right time to strike. 

Investing Parallel: Buy companies that don't give up market share easily.
While Coca-Cola's (NYSE: KO  ) revenue growth rate has slowed over the last few years, the company just recorded its 25th consecutive quarter of increased market share by value. And just as statistically, teams that control possession tend to win more games, companies that obsessively increase market share while retaining profitability tend to make great long-term investments.

The importance of the triangle

The triangle is the basic unit of the Barcelona offense. During a game, three players loosely form into a triangle, and transfer the ball via those quick, one-touch passes. Approaching teammates from any angle instantly form more triangular possibilities. This forces other teams to run more and chase the ball while Barcelona players employ their keep-away skills, expending relatively less energy. It's a simple, logical, and efficient field formulation of which Euclid, the father of geometry, would no doubt approve.

Investing parallel: Avoid companies whose business segments are organized inefficiently, and seek out companies with superior segment organization.
Part of Hewlett-Packard's (NYSE: HPQ  ) current malaise is its patchwork of seven gargantuan and disparate business segments, which range from "Printing" to "Storage and Networking" to "Enterprise Servers" to "HP Financial Services." Another tech bellwether, Oracle (NYSE: ORCL  ) , describes itself as operating in just three businesses: hardware, software, and services.Which company do you think has an easier time focusing on its business?

For the last several years, in any given quarter, Oracle's net profit margin has landed in a range of between 20% and 30%. HP's net profit margin -- when it's been positive -- has fluctuated between 2% and 8%. 

Keep the defensive line high

When Barcelona moves the ball deep into enemy territory, the entire defensive line moves up. This puts enormous pressure on their adversaries, as the field effectively becomes smaller. As triangles multiply and the short passes fly, defense and offense merge into a single organism, zinging the ball at numerous angles, but moving it methodically ever closer to the goal.

Investing parallel: invest in companies that understand how to keep pushing their defense (their existing legacy business / cash cow) while innovating in new areas.
My favorite example of this philosophy is Cisco Systems (NASDAQ: CSCO  ) . Cisco has placed bets on a number of alternate revenue streams, for example, security, which is a small fraction (3.7% to be exact) of total yearly revenue of $48.6 billion.

Yet while it expands these areas, the company never loses focus on its strength in networking. This has paid off recently, as a good chunk of computing that is migrating to the cloud runs through Cisco's networking. To quote CEO John Chambers from Cisco's last earnings call, networks are "squarely at the center of the cloud, mobility, BYOD (Bring Your Own Device), [and] security..." 

Parting 'shot on goal'

There are many more investing insights you can glean from watching the sophisticated Barcelona side play. Are you a fan of soccer, or "football" as it is known in the rest of the world? Let me know in the comments section below what other investing parallels you notice when watching Barcelona. And fans of arch-rival Real Madrid, feel free to weigh in on your phenomenal team as well!

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Read/Post Comments (6) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 22, 2013, at 9:42 AM, gajohnsonks wrote:

    FC Barcelona develops, hires, and retains the best fit, most strategically aggressive leaders, and the smartest players. The parallel: Google and Amazon (and many other successful companies) bring in and/or retain the best managers and organizers and leaders for their companies.

    BTW, the fast paced, sharp, nearly surgical, passing of Barcelona makes them worth watching. It is a beautiful game.

  • Report this Comment On October 22, 2013, at 10:43 AM, TMFfinosus wrote:

    gajohnsonks: Well said. Agree that the team's management & strategic execution is off the charts. On their passing, I couldn't embed this in the article due to copyright but check out this rondo drill; fun to watch: http://www.youtube.com/watch?v=3RNfaIW5k1g

    Cheers,

    Asit

  • Report this Comment On October 23, 2013, at 12:01 PM, alexf wrote:

    Agreed but it is Barça (pronounced Barza) and not Barca (pronounced Barka). There is a difference as one is a nickname for the team, the other is a boat.

    Barça knows how to play the game, has a wining strategy and is beautiful to watch.

  • Report this Comment On October 23, 2013, at 12:07 PM, TMFfinosus wrote:

    alexfsx,

    Thanks for the clarification and the comment. This is why I do not try to speak Catalan or Spanish, and stick to English!

    Best,

    Asit

  • Report this Comment On October 23, 2013, at 1:59 PM, TioJesse wrote:

    Good thing you ended the comparision with investing to how Barca play on the field becuase their dealings in the transfer market would NOT be a model for investors (i.e. Ibrahimović).

    Would love to see an article about investing using the football transfer market (i.e. the poster child... Arsenal!). The book Soccernomics touches on this, but it was first published in 2009 and the last few years of the transfer market have been especially irrational.

  • Report this Comment On October 27, 2013, at 12:04 PM, TMFfinosus wrote:

    TioJesse,

    Thanks for the suggestion. That's an interesting challenge, and I think I'll take you up on it!

    Asit

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