Federer beat the averages. How often does this happen when investing?

In becoming the oldest Wimbledon champion of the open era, Roger Federer may have confounded the averages – but the thing about averages is they only happen most of the time


Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

Congratulations to Roger Federer, then, not only for becoming the first man to win Wimbledon eight times – in the process extending his own world record of Grand Slam titles to 19 – but also for confounding ‘the outside view’.

For, as we discussed last week, while there were some seductive reasons for thinking he could once more be crowned champion in SW19, there were also two big objective arguments against that.

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Reason one

One was that in ‘open era’ tennis, which dates back to 1968, only one man had previously ever won the same grand slam after a five-year hiatus – Boris Becker with the Australian Opens of 1991 and 1996.

Reason two

The other was that winning this year would by some distance make – and indeed has made – Federer, who turns 36 next month, the oldest Wimbledon champion of the open era.

The ‘outside view’ is the prediction, decision or opinion you would reach given the bare facts about a situation.

The ‘inside view’ meanwhile 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.

Just to be clear, here on The Value Perspective, we were not arguing Federer could not win the tournament this year only that, on average, tennis players in their mid-30s tend not to win Wimbledon five years after previously doing so.

The great thing about sport, of course – and what keeps the romantic and the dreamer in all sports fans hooked – is things can and do happen that are a world away from the average.

Such things can also happen in investment – but investment is no place for romantics and dreamers, which is why it helps to have rules in place to keep that part of human nature in check.

As value investors, we know averages are meant to be broken and so, say, we know there are times when expensive companies – for example, tech giants ARM or Autonomy – went on to make a lot of money for their investors.

On average, expensive companies tend to lose investors money

But we also know this is highly unusual and that, on average, expensive companies tend to lose investors money. Every January, here on The Value Perspective, we look to see what we can learn from the previous year.

We analyse what we did right and wrong in our portfolios and, while the great majority of people would say that all comes down to what made and lost us money, the great majority of people would be wrong.

For us, the correct lesson to take from the process is, if I took a particular decision 100 times, would I make money on average?

As value investors, we want to make investments that make us money 60 or 70 times out of 100 so, if a particular course of action turns out to have been one of the times we lose money, the lesson is not ‘never do that again’ but ‘just keep doing it – over and over and over’.

That, in essence, is what value investing is – a set of rules that helps keep you on the right side of the averages so that, instead of being caught out by your own emotions – how likely things feel at the time – you are in a position to exploit the emotions of others.

Our own emotions we save for other parts of our life, such as enjoying the remarkable achievements of the oldest Wimbledon winner for more than 50 years.


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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