What can SOCCER teach us about BEAR Markets?

Erik Thompson |

I’ll admit, I was never much of a soccer player growing up.  One thing I do know about the sport is that at the highest level (think World Cup, etc.), when there is a penalty kick, the goalie actually has to guess which way the ball will be kicked before the player actually kicks it.  The ball is simply kicked too hard for the goalie to react after the kicker chooses his spot.  It becomes a game of cat and mouse.  An analysis of 286 penalty kicks in the top leagues shows that the overwhelming choice (94% of the time) is for the goalie to move either to the left or the right.  When the goalie guesses the correct direction he saves 25-30% of the shots.  Yet, 30% of the goals are kicked to the center.  When the goalie stays in the center he saves 60% of the shots.  The goalie would be a lot more successful if he simply did not guess and stayed in the center.   Yet goalies held their ground only 6% of the time!

So why don’t goalies stand their ground more?  The answer is psychological.  It is less painful emotionally to miss a save if the goalie at least “did something” then the emotional pain of standing still and missing it to the left or right.   

When markets get volatile and downturns occur, investors sometimes feel like they should be doing something.  Our compulsion to act (fueled in no small part by the financial media) can cause us to sell quality investments and “wait for things to get better.”   In reality this is a “sell low and a buy high strategy” and is not a very good way to invest.  If you own quality and are diversified, it often makes sense to stand your ground and just wait things out.  For those with cash on the sidelines, bear markets have historically been great buying opportunities for the patient investor.

In April 2020 (in the midst of the Covid 19 Pandemic), the Dow Jones Industrial Average was about 24,000 and I was interviewed by a local news channel (video still on my website blog) saying that “for those investors with some patience, and it might take a couple years, those that add to their accounts, in all probability will be smiling”.  Today the DJIA is around 32,000, roughly a 33% increase.  Today, my advice has not changed.  While we may be down from the highs and in a bear market today, the below illustration show how much more often we are in a bull market.