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Sir Ben Ainslie didn’t but could Roger Federer beat the outside view?

As we acknowledged last week, Roger Federer is one of the greatest tennis players ever to draw breath – but does even he have what it takes to overcome the ‘outside view’?

12/07/2017

Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

Last week, here on The Value Perspective, we were extolling the brilliance of Roger Federer on the way to explaining why skill takes far longer to reveal itself in investment than in tennis.

So, with the winner of a record 18 Grand Slam men’s singles titles purring his way into yet another quarter-finals at Wimbledon, are we expecting him to make it 19 slams come Sunday evening?

As a team, we steer well clear of making predictions.

That said, we are certainly not going to pass up the opportunity to touch again on the ‘inside view’ versus the ‘outside view’ in the context of decision-making – an idea we recently highlighted in the wake of the valiant shot at the America’s Cup by Sir Ben Ainslie and the rest of the Great Britain crew.

What is the ‘outside view’?

Put simply, the outside view is the prediction, decision or opinion you would reach given the bare facts about a situation.

As Nobel laureate Daniel Kahneman – a founding father of behavioural economics and the man behind the idea of the inside and outside views – writes in his 2011 best-seller Thinking, Fast and Slow: “This should be the anchor for further adjustments.”

What is the ‘inside view’?

For its part, the inside view grows as you acquire more specific information – the problem being that this extra data brings with it extra scope for internal bias and therefore misjudgement.

Kahneman offers this example: “If you are asked to guess the height of a woman and all you know is that she lives in New York City, for example, your baseline prediction is your best guess of the average height of women in the city.

“If you are now given case-specific information – that the woman’s son is the starting centre of his high school basketball team – you will adjust your estimate.”

Kahneman concludes that “if the reference class is properly chosen, the outside view will give an indication of where the ballpark is” and may suggest – as he once learned from personal experience – “that the inside-view forecasts are not even close”.

The outside view and Federer

Back to Federer, then, and his chances of winning an eighth Wimbledon title – and the inside view appears persuasive.

He started the tournament as the bookies’ favourite – and remains so as the quarter-final line-up took shape.

What is more, Federer already has one grand slam under his belt this year (the Australian Open), is clearly playing well and has a terrific track record on the grass courts of SW19.

The outside view, however, would point out two stark facts from ‘open era’ tennis, which dates back to 1968.

First, that the men who have won the same grand slam after a five-year hiatus can be counted on the fingers of … well, by our maths it’s Boris Becker with the Australian Opens of 1991 and 1996.

And second, winning this year would make Federer by some distance the oldest Wimbledon champion.

Of course the 35-year-old could do it – as we never tire of pointing out, nobody knows the future.

If Federer does, however, he will have to have overcome a number of opponents – not just last year’s beaten finalist, Milos Raonic and two out of, perhaps, Novak Djokovic, Marin Cilic and Andy Murray, but also his age, 50-odd years of history … and the outside view.

In the meantime, here on The Value Perspective, we will continue to incorporate the outside view into our own investment decision-making process – weighing up the margins, returns and other metrics of stocks versus their peers in a bid to protect ourselves from internal biases to which even one of the founding fathers of behavioural finance fell victim.

Author

Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

I joined Schroders in 2001, initially working as part of the Pan European research team providing insight and analysis on a broad range of sectors from Transport and Aerospace to Mining and Chemicals. In 2006, Kevin Murphy and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Kevin and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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