• Rubin Miller, CFA

Tennis Lessons


Here are two quick investing stories from the world of tennis, both involving the late writer David Foster Wallace, in celebration of what would have been his 60th birthday this week.


In addition to his most famous literary work Infinite Jest, and his oft-quoted This is Water commencement speech, and connected to his lifelong love of the sport, he was an incredibly gifted tennis journalist and essayist.


-


Philo, Illinois, 1975.


Photograph by Julianna Brion

The New Yorker, April 14, 2016



David Foster Wallace grew up here in the mid-1970's, and was by his words, a near-great junior tennis player (and he was, and went on to play at Amherst).


In Derivative Sport in Tornado Alley, David writes about those playing days.



Philo is located in Central Illinois, where it is unconscionably windy (hence, tornado alley). If you like long, predictable, country club-style tennis rallies...don't play here.


David writes in fact that the biggest single factor in Central Illinois' quality of outdoor life is wind.


He describes his own success:


The best-planned, best-shot ball often just blew out of bounds, was the basic unlyrical problem.

I couldn't begin to tell you how many tournament matches...against bigger, faster, more coordinated, and better-coached opponents simply by hitting balls unimaginatively back down the middle of the court in schizophrenic gales.

It's impossible to miss the investing parallel, a pursuit where outcomes are similarly impacted by variable, unknowable future conditions.


Investing isn't country club tennis. It's Philo tennis.


Investors should integrate the occasional, but expected, schizophrenic gales of volatility into their strategy by adding necessary buffers. You wouldn't aim the ball right down the line on a windy day. Unfortunately in investing, you never know when the wind will come!


If you own a low-cost, diversified stock portfolio from all around the globe (I recommend at least 5,000 stocks), and you've thoughtfully determined an appropriate amount of bonds to hold for your short- and long-term goals (which will dampen the impact of poor stock returns every once in a while), then you're unimaginatively aiming down the middle.


And because of it, you're already better off than 90%+ of investors.


Markets can be short-term frustrating, but are also incredibly accommodating to disciplined investors over long periods.


-


Wimbledon, England, 2006.


Nadal & Federer, 2006 Wimbledon

Photo: Anja Niedringhaus/AP


It's common for financial advisors to give clients a "risk tolerance questionnaire" to try and better understand how they might react if they lose money, as though their response might inform a better constructed portfolio.


"How would you feel if you lost 35% of your net worth in the stock market?"

I can't stand this stuff. The whole exercise is useless. Losing meaningful amounts of money leads to special, variable, unforeseeable emotions.


No one knows how they will react until it happens, and each stock market downturn is different.


As John Sullivan shares in his introduction to String Theory, a collection of five of David's tennis writings (including Derivative Sport in Tornado Alley):


Possibly Wallace's finest tennis piece, certainly his most famous, is "Federer Both Flesh and Not," an essay first published in 2006 in The New York Times...the greatest tennis writer of his generation was writing about the greatest player of his generation. The sentence needs no qualifiers.

Federer himself later remarked, in a question-and-answer forum, that he was astonished at what a "comprehensive" piece Wallace had produced, despite the fact that the writer had spent only "20 min with him in the ATP office."

But I doubt Wallace wanted more face time than that.

He had come to Wimbledon in search of not the man Roger Federer but rather the being Federer seemed to become when he competed.

What Wallace wanted to see occurred only as spectacle.


Some things in life are so spectacular that we can't hear about them to know about them.


It's like the risk questionnaire. You can't know the gut-punch of losing meaningful amounts of your money until you get punched in the gut.


If you want to know about the once-in-a-generation beauty of Roger Federer tennis, you don't sit down for a three-hour interview. You watch him play.


-


When it comes to stock market downturns, I get tired of people saying to stay the course.


It's more complex than that, each time. If you look at the data, yes, investors should stay the course. Obviously.


But it's a spreadsheet-easy, human-hard mentality. That's real money being lost, and money's emotional, and emotions can cause us to not act in our own best interest.


So the best investors are ready for the Philo winds long before they start blowing.


Because we aren't spreadsheets. We're just humans.


Urbana High School Tennis Team


End.