Ed McKnight: The Roger Federer Effect and investing money

What does a tennis player have to do with investing? 

Roger Federer was a Swiss tennis player, ranked world No. 1 in men’s singles for 310 weeks, including a record 237 consecutive weeks.  

He won 80% of his matches, but only 54% of points, and Ed McKnight thinks there’s something here that can be applied to investing. 

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Episode Transcript

Speaker 1 (00:07):
You're listening to the Saturday Morning with Jack team podcast
from News Talks, that'd be.

Speaker 2 (00:12):
Time to catch up with our personal finance expert. Ed
McKnight from Oby's Partners is with us this morning talking sport,
which I know sounds confusing.

Speaker 3 (00:20):
Kielder, Ed, great to be here, Jack.

Speaker 2 (00:22):
Great to be speaking with you. They call it the
Roger Federer effect. When I think of Roger Federer, I
think of maybe the most fluid and beautiful tennis player
of all time. But you think of something very different.

Speaker 3 (00:34):
Indeed, well, what's quite funny, Jack. I was on my
treadmill walkie away watching some YouTube videos that I saw
this really interesting speech that Roger Federer gave at Dartmouth College.
He was up there in the full dress, said he
shared a stat that really blew my mind. Now we
all know Roger Federer is one of the greatest tennis

(00:54):
players of all time. He won over eighty percent of
the singles matches he played. But then he asked this question, Well,
if I won eighty percent of the matches, how many
points do you think I won in those over a
thousand singles games. Now most of us would say, well,
surely it's got to be eighty percent, but it actually

(01:14):
wasn't It was fifty four percent of points. And I
promise you that this has a money related effect.

Speaker 2 (01:22):
Yeah, that's very very interesting, isn't it? So fifty four
He only won fifty four percent of the points. When
I think about the structure of tennis and I think
about the kind of the statistical side of tennis, I
suppose that tennis, while it has a set number of sets,
there's no guarantee as to how many points will be played. Right.

(01:44):
You can win a game by being up forty love,
or you can win a game by being at tiebreak.
But I suppose at the end of the day that
the important thing is that you win a majority of points.
And if you win a majority of points, you end
up probably winning games. But that's a huge discrepancy.

Speaker 3 (01:59):
Well, here's how the stats work. If you win fifty
four percent of the points, then you win around sixty
percent of the games, right, And if you win sixty
percent of your games, you win around seventy three percent
of your sets. And if you win seventy three percent
of your sets, that compounds into winning about eighty three
percent of your matches. And look, if you win eighty
three percent of your matches, you become Roger Federer and

(02:21):
you're a world class champion.

Speaker 2 (02:22):
I was going to say, and you took that word
off my tongue, compounding right.

Speaker 3 (02:26):
Well, when I heard that Statujack, that's what I was like.
That is a depth how investing works. Because sometimes people
say to me, Ed, you talk about how shares and
property tends to go up over time, But then I
look at my shares ees app and it looks like
half the time the shares go up or McKee we
savor goes up, and half the time the balance is

(02:47):
going down. And it made me realize that if we
take the F and P five hundred, it only goes
up fifty three percent of the time on a daily basis, right,
which means you've always got a coin flip chance on
any given day that the market's going to go up
or the market's going to go down. But that compounds
into sixty three percent of the time the S and

(03:10):
P five hundred goes up in a given month, or
sixty nine percent of the time in any quarter, and
if you look over a year, it's about seventy four percent.
And the longer you go out the higher, that number
goes up. And so when I one of the things
I often say to invest is the money is made
in holding. But if you're investing for the first time
and you put some money in and then the next

(03:32):
day you run back to see how much you made,
and oh, gosh, half the time it's going up. Half
the time it's basically going down. You can't distinguish that
you've got a slight edge. But the money is made
in the holding. And if you look back over a
year and you go, oh, seventy four percent of the
time I'm actually making money, that can make you start
feeling better. But it's just to say that you're not

(03:53):
going crazy. If you're regularly logging it on a daily
basis checking your shares or on a monthly basis into
your ain z as, checking the value of your property.
You're not going crazy if you see it going up
in down a lot on that short term, because you've
got to zoom out over the year or the five
years to see, oh yeah, this investing thing does work.

(04:14):
So just keep in mind that Roger Federer effect. It's
the same in tennis as with your investment.

Speaker 2 (04:19):
It's funny how human psychology is such a funny thing, right,
But we can all rationalize that with investments, things go
up over the long term. And yet still if you
log into your key we saver and you've lost a
couple of percent overnight and you see that as several
thousand dollars, even if you're not going to be realizing
that that gain or that loss for years or decades
to come, you still feel a bit stink. It's just weird.

(04:42):
It's a weird kind of dynamic.

Speaker 3 (04:44):
Especially when you see shares. Is it happens more with
shares them with property because the price of shares of
the S and P five hundred changes every single day,
and so you can see that happening. And it's so
easy to get despondent and feel like, oh, gosh, I
won money this day, or I made money this day.
I did it the next day. But just keeping in mind, oh,

(05:05):
it's the same with Roger Federer. You wouldn't look at
him playing a single game and think, oh, he's a
bit use. It's the only wins about half his point. No,
he's a world class tennis player. You can't just look
at the single point. It's to match that matters, and
it's the same with your investing.

Speaker 2 (05:21):
Oh that's so good. Love you work here. Thank you
so much to have a good weekend.

Speaker 3 (05:25):
You two.

Speaker 1 (05:26):
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