Yesterday, the world stood still as Germany faced Argentina in the 2014 World Cup final. In the 113th minute, Deutschland found its opportunity to claim the coveted title. And while the glorious game is over until 2018, the lessons learned could serve anyone -- including investors -- for a lifetime.
Here are five important investing takeaways from the 2014 World Cup.
1. There's no "I" in "team"
In the days leading up to the World Cup final, a meme made its way like through social-media channels like wildfire:
While this might unfairly disregard some of the finer Portuguese, Brazilian, and Argentinian players, there's no denying that Germany played some of the most streamlined soccer ever seen. You could see it in the way the defense and midfield merged together. You could see it in the endless passing. And you could see it in the way they commiserated and celebrated together.
Your investments are not alone. They make up your portfolio -- and they need to work together, too. If you want a high-reward, aggressive, "Lionel Messi" growth stock in your lineup, you need a low-risk stock, too.
Your portfolio needs diversification so that one stock's weakness is another stock's strength. If you have a luxury retail investment, you might want to consider a defensive utility stock for when the economy takes a turn for the worse. Meanwhile, you may want some high-growth, cyclical investments that will shine during bull markets.
Germany didn't have the best players on the field, and you don't need the best investments around. But if you create a balanced portfolio, your team of stocks will be sure to outperform in the end.
2. Defense matters
Source: Wikipedia Commons; Philipp Zachl.
If you think the purpose of soccer is to score goals, you're wrong. The purpose of soccer is to not let the other team score against you. Zero-to-hero U.S. goalkeeper Tim Howard exemplifies this mantra.
On July 1, the U.S. was knocked out of the "sweet 16" in a 2-1 loss to Belgium. But what could've been a day of mourning for America turned into a celebration of our incredible goalie. While Belgium snuck two soccer balls by Howard, he managed to make a whopping 16 saves -- more than any other goalie since the World Cup was first played in 1930. A clever Wikipedia user even went so far as to temporarily change the "U.S. Secretary of Defense" entry from Chuck Hagel to Tim Howard. (Hagel subsequently phoned Howard to thank him for his defense of our nation.)
The Tim Howard analogy is perfect for investors. Like it or not, the U.S. is far from the "best" team -- according to FIFA, we're unlucky number 13 in world rankings. For individual investors, it's easy to suffer from an inferiority complex. We don't have the money, data, or technology to compete with Wall Street. While their bots are mining Bloomberg machines for the latest buy opportunities, we have to rely on our own judgment and a lot of research.
But we don't need Wall Street. If we have a strong defense, our portfolios can still excel. In the past 10 years, the blue-chip S&P 500 index has survived a global financial crisis and still managed to grow an impressive 76%, or 117% when accounting for dividends.
Defensive stocks allow investors the opportunity to buy and hold without having to worry about when their next scoring opportunity will appear. With a team of Tim Howards, you can hang on to the ball for decades, watching overly aggressive teams fumble time and time again.
3. We all lose -- sometimes horribly
Source: Wikimedia Commons; Marcello Casal Jr.
In the semifinals, Brazil suffered what can only be described as a devastating loss to Germany. For years to come, Brazilians will have nightmares that last exactly 28 minutes; in less than half an hour of play, Germany scored five goals to Brazil's nil. When the dust settled, Brazil was left with one last-minute goal to Germany's seven.
In investing, we all lose now and then. One of the greatest investors of all time, Peter Lynch, is famous for his sobering perspective on outperformance: "In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten."
In both soccer and investing, we can't always expect to win. But we can't let losses scare us away from the market. As Lynch put it, "You can find good reasons to scuttle your equities in every morning paper and on every broadcast of the nightly news."
If you invest or play soccer long enough, you'll experience some harrowing losses. One of your investments may go bankrupt. Another stock's dividend may disappear overnight. There may even be a scandal involving, dare I say it, subprime mortgages.
But while Brazil's defeat in this World Cup will go down in infamy, it's equally certain that the country will rise to footie fame once again.
In the end, it's all about attitude
Colombia made it to the quarter-finals this World Cup, but Brazil axed their aspirations with a 2-1 defeat. The loss was huge. Colombia last qualified for the World Cup in 1998 -- a full 16 years ago.
But did the team head back home hanging their heads? Hardly. In a show of supreme sportsmanship and optimism, Colombia went back to doing what it does best: celebrating!
The team returned to nationwide jubilation, complete with a welcome-home dance party that sent waves of happiness throughout the world.
Brazil may have been sobered by their loss against Germany, but Colombia was elated by their own loss to Brazil. As investors, we have a lot to learn from our Colombian compadres. Everything is relative, and for long-term investors, that's excellent news.
We can ignore ups and downs that cause short-term investors to go crazy. In the same way that Colombia shrugged off its latest loss, long-term investors can ignore ticker streams, in-your-face investing news, and cocktail party chatter over the secret stock set to soar in seconds.
Instead, take a look around and enjoy the quality of life that your smart investments allow you to enjoy. And if you have a soccer ball around, you might even think about heading out back to practice penalty kicks with Junior.
