Articles 9 minutes

Why Investing should be like Test cricket, and not a Twenty20 sprint

2 November 2022

Hear me out.

For the majority, cricket conjures images of summer; classic white uniforms, leafy green backdrops, and plenty of stodgy sandwiches and cakes laid out town-hall style. Occasionally there will be a polite ripple of applause as a wicket falls to the bowling side.
Test cricket is a five-day affair which consists of both sides batting and bowling twice. The days play is split up into a morning session, followed by a 40-minute lunch break, an afternoon session, followed by an afternoon tea break, and an evening session to before the close of play. Each passage of play has a nuance inside a nuance. Test cricket is for the purists who understand the ebbs and flows of the game and thus is part of its traditional charm. It is extremely difficult to explain the complexities in one sitting – trust me, I’ve died on that hill many times, mainly at dinner parties.

In contrast, Twenty20 cricket is a cauldron of colour, energy, and drama!

The global appeal of the multi-billion dollar Indian Premier League has been the springboard for domestic twenty20 franchises and has captivated a new audience of cricket fans. Live music, cheerleaders, glitter cannons, and all the razzmatazz of a Super Bowl is crammed into one evening of thrill-a-minute sports. As this article goes to print, we are in the thick of the Twenty20 World Cup 2022, which is all by design. We have witnessed some breathtaking displays of heroism taking a game seemingly lost right down to the last over to win in the most spectacular way.

If the names Gary Kirsten, Rahul Dravid, Steve Waugh or (Sir) Alastair Cook mean anything to you then you’ll start to see where I’m heading with this. If, like my wife, you think these are the names of some of my school friends I’ve drifted apart from over the years, allow me to explain in more detail.

These icons of the game were recognised within the global cricket community for their watchful vigils at the batting crease, mitigating risk with impeccable judgment. Their resilience under pressure and their ability to effortlessly move from stoic, watchful defence and survival to effortless run-scoring at the right time warding off 100.

Ignore the chatter and stick to the plan

Former Australian captain Steve Waugh had a sparkling career playing for 19 years and scoring over 18,000 runs for his country. Waugh is widely regarded as one of the greatest minds in the sports history and holds the record for most Test cricket victories as captain, winning on 41 occasions. He defined mental toughness as “emotional stability and psychological consistency”. Waugh’s win percentage as captain stands at a staggering 72%, demonstrating that he made the right decisions under pressure and met adversity head-on.

It’s this stability and consistency we need to embrace in order to cut through the noise and drama of a volatile stock market.

The all-action, fast-paced Twenty20 carnival is more fun, exciting, and unpredictable. Every ball is an event. Wickets are greeted with fireworks, fielders celebrate catches with signature moves, and the music echoes around the capacity crowd.

The extreme momentum swings in a Twenty20 game could see a side cruising to victory or starring down the barrel of a defeat, but a flurry of wickets or boundaries changes the complexion. The first team to panic is normally on the losing side.

If these emotional micro events manifest in our investment approach, we could do significant harm to our investment decisions.

Refer back to your original investment objectives and maintain clarity over what you want to achieve, versus panicking at the first sign of a sell-off.

Understanding the conditions

Picture the scene; you’re at Lords Cricket Ground in St John’s Wood, London, the revered home of cricket. You’ve just sat down in your seat surrounded by a sea of Egg & Bacon (yellow and red coloured blazers proudly worn by the Marylebone Cricket Club members). There is a light breeze, the skies are overcast, and the outfield is a similar tinge of green to the main pitch. These conditions would be completely different to those of a dry abrasive surface in Mumbai, or a rock-hard and bouncy day-one pitch in Melbourne. Each set of conditions have their own unique challenges for the most technically proficient batsmen.

The current market conditions are incredibly testing for seasoned professionals whose job relies on them picking winners.

Equities tend to do well when interest rates are low, bonds come into their own when interest rates are high, and gold is considered a good hedge against inflation. Unfortunately, the pitch we are playing on at the moment is conducive to multiple different factors with swing, spin, and variable bounce making it harder to play and find success – I’ve played on a few pitches like that.

Back in the real world, inflation is high, interest rates are rising, and equity markets have stalled. We accept and embrace volatility, but it’s the uncertainty that we can’t account for. The prolonged Ukraine War continues to add to the skepticism that the markets will bottom out in the next three to six months.

Be realistic in the current market conditions, take a long-term view, and stick to an evidence-based philosophy that markets will rebound after a big sell-off, as this will limit any self-destruction chasing gains in less-than-ideal conditions.

Powerplay versus playing for tea

I might need to provide some context to this.

In Twenty20 cricket, the first six overs are called the Powerplay. The fielding side is only allowed two players outside the 30-meter circle of the cricket pitch, the other seven fielders (plus bowler and wicketkeeper) are closer to the bat, some in attacking catching positions. After the Powerplay has completed, the fielding side is allowed five players outside the 30-meter perimeter for the remaining overs. This is a perfect risk versus reward scenario for the batting side; do they swashbuckle their way to quick-start, or will they lose wickets being too aggressive and succumbing to the attacking nature of the bowling and fielding plans?

If we compare this to Test cricket, there are no Powerplay-induced fielding restrictions, meaning the bowling side have carte blanche over their plans and tactics. Batsmen can be more selective about their attitude to risk because the Powerplay limitations aren’t a factor.

Like with Test cricket, in investment terms time is your greatest ally. Markets go up, and markets go down, so being able to ride its cyclical nature is very important. Allowing your investments to grow and compound for ten, fifteen, or twenty years without needing to draw on them is an excellent way to build up your retirement pot.

But, what happens if you are closer to retirement, or you need the money sooner? Instead of growing your wealth, your priority might be to preserve it.

Dialing back exposure to volatility and reducing risk is something Sir Alastair Cook profited on for years. He maximised his efficiency by limiting his game to his strengths, namely three attacking shots; the cut, the pull, and the flick off his legs. I appreciate we are veering towards another section of cricket chatter with a thinly veiled ‘investing explanation’ at the end, but it does make sense.

Cook believed ‘driving’ the ball was too expansive and too risky for him to use at will and removed it from his game, or at least until he was better established at the crease. India great Sachin Tendulkar famously did the same in a match against Australia in 2004. Tendulkar’s trademark shot was the ‘cover drive’ which made this accomplishment even more remarkable. After a succession of dismissals from a loose cover drive the Little Master eliminated it from his armoury and fought his natural urges to strike a magnificent 241 not out at the Sydney Cricket Ground. He faced 436 deliveries, and exercised incredible willpower to resist the carrots dangled by the Australian team. “They were bowling consistently outside the off stump, and I decided to leave all those balls. Then they had to bowl to me”.

Helping people create and grow their wealth is something I love assisting with. We also need to be mindful of preserving wealth as well. Remember, we can move the scoreboard along in singles and well-run twos, we don’t have to hit maximums all the time.

‘Time in the market versus timing the market’

This heading is self-explanatory. We want to avoid picking and choosing when we enter in the markets, and when we sell out.

According to research from J.P. Morgan Asset Management, the market’s worst days tend to be followed by its best days. So, if you sell when the markets drops you’ll probably miss the upside. A common misconception about investing is that we can take control when the markets drop. All you are doing is locking in the losses and increasing the likelihood of missing the best days.

Cook, Tendulkar, and Waugh share many things in common. Their successes weren’t measured in short-term gains, and that’s something we should be replicating with our investment strategies. Sometimes the market conditions don’t provide opportunities for double digit growth, maybe the funds you’ve selected will lag behind the benchmark but taking a long-term view of the markets will limit any impulsive behaviour to over complicate things.

I’d like to leave you with this, as we haven’t discussed Gary Kirsten yet. Kirsten wasn’t blessed with the flair or flowing technique of his peers, he was a gritty, disciplined character.

In 1999, South Africa were collapsing on their way to a home defeat against England, but Kirsten bunkered down and scored a monumental 275. In Kirsten’s marathon innings he faced 642 balls in almost 15 hours; on 493 occasions he either defended without looking to score a run, took evasive action to avoid being hit, or maintained a minimalist’s approach and watched the ball pass his stumps without playing a shot. It would be easy to suggest Kirsten did nothing 493 times, but he would have calculated the risk versus reward for each of those dot-balls. His active decision-making prioritised time at the crease and wicket preservation versus trying to blast his way out of a precarious situation. Investors would do well to take the same approach to active decision making, even if that decision is to hold existing positions.

This post is a general communication being provided for information purpose only. It should not be relied upon as financial advice and it does not constitute a recommendation, an offer or solicitation. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.

Past performance is not indicative of future performance.

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