Tuesday, July 6, 2010

Kedrosky, Tennis & Investing

Epic post by Paul Kedrosky using Tennis as a metaphor for investing. Actually, he never says it but I think that is the connection he is getting at. Anyways, his post is visual and too hard to paraphrase, so just go read it so you can see the pictures.

Here is a nice quote though:

"Look once again at the picture of Center Court from this year’s final. See anything like what you saw during Borg/McEnroe? No, not at all. As most tennis fans know well, the game of tennis, even on grass, has been transformed by technology in recent years, with a “power baseline” game becoming dominant. Players like Rafael Nadal wallop the ball from the baseline, hitting unreturnable shots (“winners”) from parts of the court where players like Connors, Ashe, Borg and McEnroe would never have imagined it possible."

The serve and volley game of the 70's & early 80's are the Nifty Fifty of investing in the 70's & 80's (50 stocks that supposedly never would go down, but of course did just that). The point is that like Tennis, things in investing change. And then they chance again, we just don't know which way. Many of those Nifty Fifty stocks bounced back in the late 80's & 90's (note I just picked the Nifty Fifty because it is a semi-famous example in investing of something that can't miss, but does).

My bet is that something in Tennis (and investing today) changes. Golf responded to the kind of technological advancement that Tennis has seen with longer courses. Maybe Tennis needs to change the parameters of the court, making it longer so the degree of difficulty on baseline shots increases. Computer trading is changing the way the stock market trades and prices in information, making it more difficult to understand what the market is saying. Monetary stimulus from the government is changing the relationships between different kinds of bonds and the market too. Something will change and throw the new world we live in out of whack again. The hard part of investing is seeing it before (or at least while) it happens.