By Rick Waechter, Founder

The World Cup just concluded. It was another spectacular tournament. The only thing that is more fun than watching the games unfold is watching the fans watch the games unfold. The passion is unlike any other sporting event. I hope you had the opportunity to follow it.

Since I’ll never understand the intricacies of football (a.k.a. soccer) strategy, my mind wandered periodically to investing lessons from the World Cup. Here are my top three.

• Patience is critical. In the final match, despite dominating, Spain could not score during regulation time (90 minutes). But they knew they were the better team. Eventually – after 106 minutes, in extra time – they broke through with the winning goal. If you want to succeed as an investor, you need two things: a strategy that has a high chance of success, and the patience to see it through – even if it means suffering through rough times. The first decade of this millennium was the so-called “lost decade”. The US stock market generated no return over 10 years. It was not easy to stay invested, through the dot-com crash and the great financial crisis. But those who did stay invested reaped the benefits of the subsequent 15 years, when the market has generated returns far higher than normal. The pain was worth it.
• Diversification matters. Argentina, the runner-up, was the soccer equivalent of putting most of your money in one stock. They had arguably the sport’s greatest player ever. Why not bet on Messi – build your team and your strategy around the GOAT? In fact, that strategy worked for them in 2022, when they won the World Cup. But more often than not, diversification is the better strategy. You can certainly be very lucky; employees and large shareholders of NVIDIA over the last decade have made many millions. But I can give you too many examples of betting big and losing. If you are a serious investor who cannot afford to lose a large chunk of your net worth, diversification is the answer.
• Markets are efficient. Entering the tournament, the highest-seeded teams, in order, were Spain, Argentina, France and England. Spain won, Argentina was runner-up, and the other two semifinalists were France and England. The World Cup doesn’t always play so close to form. But usually the favorites win. In investing, we believe the markets are efficient. It’s rare to find a stock which no one else has heard about that is wildly underpriced. There are too many professionals spending too many hours dissecting every single company’s prospects. That is reflected in the price. The evidence is clear: paying someone to look for hidden gems (or spending your own time doing so) is throwing good money (or time) after bad. Usually, the market knows what a stock is worth – just as the experts usually have a good idea who will do well in the World Cup.

I’ll close with one lesson yet to play out – and one which may still be decades in the making, or which may be about to materialize. For decades, soccer in the US has been the sport of the future, never to catch on. Will we look back in a decade or two and see this World Cup, which the US co-hosted, as the turning point? I am hopeful, but I have my doubts. In the same way, investors today wonder if we have entered an utterly new economy and stock market with AI, where technology allows us to live radically better lives and the stock market rewards shareholders for far-sited investments in companies years away from profit. I fear a messier future, and a messier path to that future.

For investing, diversification should be the goooooooal.