What Does Football Have In Common With Investing?

footballSome might not think so, but to me, football and investing have lots of commonalities, even if they seem like they are worlds apart.  Here are three commonalities that I see between football and investing.

Weighing them for their worth

Before a football team buys a player, the scout usually accesses the player for their different attributes in terms of his technical, mental and physical abilities. A defender has to be assessed in terms of tackling, marking and heading abilities, among others. He must be physically strong as well. On the other hand, a forward may be assessed in terms of finishing, anticipation and flair. Those who have played the PC game, Championship Manager, will be all too familiar with this.

Similarly, before investing, the investor has to assess the company he is interested in. Some of the questions to ask would be: What business is the company involved in? How does the company make money? Does the company have a sustainable competitive advantage? Let’s take Singapore Exchange (SGX: S68) as an example. SGX is the local stock market regulator and operator and it makes money by the various fees it charges. It is a monopolistic business and anyone company wanting to go public in Singapore has to go through SGX.

Buy them when they are “unloved”

Players such as Cristiano Ronaldo, Gareth Bale and Theo Walcott were unknowns when they started off their careers. Ronaldo was playing for a Portuguese club, Sporting CP, when he caught the eyes of Sir Alex Ferguson in 2003. Manchester United bought him for around £12 million in the same year. Six short years later, he became the most expensive footballer in history then when Real Madrid purchased him for £80 million. The stories of the two other players are almost similar.

When it comes to investing, we would love to buy businesses when they are shunned by the masses. Only then can the stocks be bought for cheap. When even the shoe shine boy talks about it, you know the stock is not cheap anymore. During the depths of the most recent financial “armageddon”, stocks such as Silverlake Axis (SGX: 5CP) and Sarine Technologies (SGX: U77) were trading at the lowest price-to-earnings (PE) ratio of approximately 2 and 3 respectively. Examples are abound where such wonderful businesses could be purchased for extremely low valuations during the crisis.

Think long-term

A player takes time to flourish and become better. Take David Beckham as an example. He joined Manchester United in 1992 as a youth player and went on to become a world-renowned footballer, before retiring in May last year. Over a span of around 20 illustrious years, he had won tons of medals, orders and special awards; not to mention the various records he broke. It took 20 years for Beckham to get where he is today.

Investing guru, Warren Buffett, who has a knack for expressing himself in pithy one-liners, once said that you can’t produce a baby in one month by getting nine women pregnant. In investing, one has to always think long-term of five years or more. The same Silverlake and Sarine Technologies bought around five years ago would go on to give handsome profits. Currently, the firms are trading at a PE ratio of 25 and 27 respectively. That is a PE expansion (current PE divided by the lowest PE as stated above) of nine to 13 times.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

Like us on Facebook  to keep up-to-date with our latest news and articles. The Motley Fool’s purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.