Olympic investing lessons
First, the experts may be wrong, as they usually are in predicting the stock market. Most of the media had the U.S. handily winning the medal count. The experts predicted the US would easily win the most gold. Even these prediction models had the U.S. winning an average of 42 gold medals versus China's 33. As of the time of this writing, the U.S. has won 34 gold medals while China has earned 36.
Predicting the Olympics is pretty simple compared to predicting the stock market or individual stocks.
Second, my intuition was usually wrong, just as it is in investing. I was sure the U.S. men's track and field prowess would move us into first in the medal count, but sprinter Usain Bolt and the rest of his Jamaican teammates had other ideas. In investing, my instincts are always to buy high and sell low. In fact, it's a human instinct. That's why I usually have to invest contrary to what my instincts tell me.
A third parallel between the Olympics and investing is my home country bias. When I watch the games on TV, it seems like the Americans are dominating. Sure, I see some Chinese athletes winning gold, but my native impulse is think they are nowhere near the performance of the U.S. Then I look at the gold medal count and China still has the lead. The explanation, I suspect, is that media coverage of the Olympics is oriented to sports Americans are interested in. In investing, we also tend to buy what's familiar and tend to overweight U.S. companies.
But there is one area where the Olympics and investing are completely different -- the score. As of this writing, China had two more gold medals than the U.S. It's pretty simple to measure. In investing, it's hard to know the score, with many relying an index like the S&P 500, which is only part of the market and strips out dividends. It would be like saying the U.S. slaughtered China because their diving medals don't count along with the one out of three medals in the other sports.
There are those who might say I've missed the point. After all, the purpose of the Olympics is to deepen international understanding and foster a spirit of friendship, solidarity, and fair play. It's not about the score at all, right? Though in theory that may be true, I think we can all admit that the true enjoyment of watching the Olympics is seeing our athletes win, and win big.
Now that I think of it, that may be the fourth similarity with investing.
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