Spain Wins with Smart Tactical Play
Spain’s 1-0 victory over Argentina in the FIFA World Cup championship game offers a valuable lesson in commitment and patience.
Despite controlling much of the match, Spain had nothing on the scoreboard to show for it, but they stayed committed to their patient, possession-based approach.
Substitute Ferran Torres scored the winning goal in the 106th minute of extra time, giving Spain the win.
This lesson extends far beyond soccer, as success often belongs to those willing to endure uncomfortable stretches without abandoning the process.
Markets work much the same way, often delaying rewards for good decisions.
Jean-Marie Eveillard, the long-time portfolio manager of the First Eagle Global Fund, understood this dynamic.
During his first decade running the fund, Eveillard was a superstar, with the fund returning 236% from inception through March 1997.
Then he started trimming positions, raising cash, and adding some gold exposure, suffering a period of miserable relative performance.
Between March 1997 and March 2000, while the Nasdaq Composite nearly tripled, First Eagle posted a total return of just 28%.
Eveillard was unflappable, saying, “I would rather lose half of our shareholders, than half of our shareholders’ money.”
As it turned out, he did lose about half his shareholders, but the cycle eventually turned, and in the 10 years from March 2000 to March 2010, First Eagle Global Fund more than tripled.
Seth Klarman, whose Baupost Fund returned 15.9% per year during the “lost decade” of 1998 to 2008, has described the psychological burden of this approach.
Klarman said, “You must ignore the market and go against the grain in the short term [in order] to win in the long term.”
In today’s exuberant market, this disciplined approach is especially relevant.
Investors who abandon a sound strategy too early often miss the payoff they’re waiting for.
Rotations take time, and sentiment changes slowly.
The key is to stay committed to a patient, disciplined approach, trusting that good decisions will eventually be rewarded.
It is similar to how the stock market can be affected by external events.
