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Investment Lessons from Sir Alex Ferguson (Well, Kind Of)

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The Motley Fool Singapore

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Football is like the stock market. You aim at a goal, miss, and then get into a fistfight. Or maybe that’s just the way my investing works, and I need a stock broker with fewer tattoos. Either way, the Motley Fool folk are the experts at this; and they’ve found some apparent connection between a football coach and the next Warren Buffet:

 

Sir Alex Ferguson presided as manager of the English football club Manchester United (affectionately nick-named the Red Devils) for 27 years from 1986 to 2013 and delivered phenomenal success by winning 38 trophies during his tenure.

Along the way, the victorious exploits of the Red Devils captured the imagination of fans worldwide and helped improve the club’s popularity. In fact, this year, Manchester United was named the second most valuable football team in the world at US$3.165b by Forbes. That’s in no small part a result of Ferguson’s achievements at the club.

The Red Devils’ decorated manager retired in May this year and recently sat down with a Harvard Business School professor Anita Elberese to detail his hugely successful management methods.

Being a fan of the club, I lapped up his thoughts on managing Manchester United and soon realised that not only was it a blueprint to successfully run a football club, some of his methods could also be applied to the art of investing:

 

1. Start With a Foundation

Ferguson believed in creating the right structure for the long-term by focusing on the club’s youth programs and “build right from the bottom”.

He understood the importance of having the right philosophy – that of building a club and not just building a team – as a foundation from which greatness can be built upon. Similarly, when we’re investing, it’s important to have the right foundational mind-set of buying businesses, not tickers. With that, everything else flows into place.

 

2. Dare to Rebuild Your Team

Ferguson was never one to shy away from jettisoning his star players in order to rebuild a new team that he deems is fit enough to thrive against new challenges.

Sometimes, when we invest, we have to dare to rebuild our investing ‘team’. If certain shares in our portfolio are not performing because their businesses have not been performing as they should, we should pick up the courage to sell them and start anew, even though the act of locking in those losses is really tough to accomplish.

 

3. Never, Ever Cede Control

When Ferguson was at the helm of Manchester United, he set himself out to be the biggest personality there. He “wasn’t going to allow anyone to be stronger than [him]”

In the same vein, we must never allow the Market to assert a control over us in telling us what a share’s really worth.

Was the Straits Times Index (SGX: ^STI) tracker, the SPDR STI ETF (SGX: ES3), too low at S$1.51 on 10 March 2009 when the index was at a trough of 1,455 points during the nadir of the 2007-2009 Great Financial Crisis? On hindsight, the market was wrong to price the ETF at S$1.51 as it has since jumped by 111% to S$3.18 currently.

Those who focused on how the STI was carrying a Price-Earnings ratio of around 6 at the time (link opens a PDF) might have found the valuation of the index to be too low. Those who focused solely on the index’s points-level would have been hard pressed to tell what the index’s intrinsic worth might be.

Often, there’s a discrepancy between a share’s true, intrinsic worth, and what the market’s offering. If we think the market’s always right, then we’ll have ceded control of our investing decisions over to it.

Warren Buffett once told others that “the market was there not to instruct me but to serve me.” Those are wise words to heed.

 

4. Prepare to Win

Even before any game’s played, Ferguson has already prepared his team well in advance by instilling the proper winning mentality into his players early in their careers. The proper skills, strategies and tactics would also be drilled into the team way before hand.

Similarly, if we want to ‘win’ at the investing game, we have to be prepared. Market pullbacks are one of the best times to build wealth but it is also perhaps the hardest time for one to invest. Falling markets create fear, which can in turn paralyse someone into not taking any actions.

Prepare yourself for a falling market by creating a wish-list of stocks you’ll like to own only if their prices had declined to a lower level.

 

5. Rely on the Power of Observation

Ferguson remarked that delegating duties to his deputies was one of the best decisions he ever made because it allowed him to observe.

He could then pick up subtle clues about what was wrong with certain players and step in before it’s too late, pushing his performance level as a manager up a notch in the process. In fact, he viewed observation as a “critical part of [his] management skills.”

It’s perhaps not a coincidence that the act of careful observation, on the popular products and services that are being used around him in his everyday life, is an important part of investing legend Peter Lynch’s toolkit.

When we’re out and about in the streets, spend just a little more effort to see what’s going on. Impressed with the level of retail activity at shopping malls like Plaza Singapura or Raffles City? Why not check up on these malls’ owner, the real estate investment trust CapitaMall Trust (SGX: C38U)?

Enjoy toast, half-boiled eggs and coffee at Toast Box outlets? That’s a cue that you could perhaps also investigate Breadtalk (SGX: 5DA), owner of the outlets. Or maybe, you may have noticed that heartland malls such as Causeway Point and YewTee Point are seeing greater traffic. That could warrant a study of Fraser Centrepoint Trust (SGX: J69U), owner of those malls.

Just to be clear, keeping our eyes peeled while shopping would never allow us to know everything that’s important about an investment, but it can certainly clue us in to important yet subtle trends.

 

Foolish Bottom Line

Football and investing might be very different activities but it pays to observe and learn about behavioural traits exhibited by successful people in all walks of life. Sometimes, surprisingly relevant links between disparate activities that pertain to success might emerge.

 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned but is an avid fan of the Red Devils.

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