Legendary American engineer Dr Simon Ramo wrote a book in 1970 about, of all things, tennis, titled Extraordinary Tennis for the Ordinary Player.
The engineer in him noticed that the game of tennis involves two games – one is played at the professional level and the other is played at the weekend warrior level.
Now, that’s not particularly brilliant, but the conclusion he reached from his observation is.
After extensive analysis, Ramo concluded that professional tennis players win points while amateur players lose points.
In other words, for professionals, most points are won by the pro hitting a spectacular winning shot that is just out of reach of their opponent (a “winner’s game”), while amateurs typically lose points by making an unforced error (a “loser’s game”).
In his blog, financial planner Hawley MacLean explains that noted investment analyst Charles Ellis, writing in a famous Financial Analysts Journal article from 1975, extended Ramo’s tennis concept to the investment business.
Ellis said investing had flipped from being a winner’s game to a loser’s game.
He meant that to succeed at investing you need to focus on making fewer avoidable errors as opposed to making spectacular winning investments.
Now making fewer avoidable errors is a worthy goal at any time, but it is critical in today’s turbulent markets.
The best way to explain this is that during property booms it’s easy to look smart – rising values cover up many mistakes.
But now that our markets have been flat for some time, many investors who didn’t have a proven strategy are floundering and some have to sell their investments because, as they put it: “Property investing doesn’t work any more.”
That’s just confirmation of Warren Buffet’s famous saying: “When the tide is out you can see who is swimming naked.”
Meanwhile, at the same stage of the cycle, those more strategic investors who understand the importance of correct timing, proper asset selection and smart financing using financial buffers to get through the lean years, are still heading towards financial independence through smart property investing.
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These successful investors are not trying to get rich quick. Instead, they focus on making fewer avoidable errors by using proven, trusted property investment systems.
Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.