Win the Important Battles: Investment Lessons from Roger Federer’s Stats

It may feel strange to have an article about tennis legend Roger Federer on a blog that focuses on investment and high-tech trading, but the reality is that there are many similarities between top-level sports performance and high returns in investment. That also means that we can get some very valuable investment lessons from Roger Federer’s stats, which we outline below. 

How & Why Do Federer’s Stats Apply to Investment?

During a speech at Dartmouth College earlier this month, Federer said something that has resounded with investors and traders across the world: 

“In tennis, perfection is impossible... In the 1,526 singles matches I played in my career, I won almost 80% of those matches... Now, I have a question for all of you... what percentage of the points do you think I won in those matches? Only 54%.”

What this means is that to become a tennis legend, you don’t need to win every point, but rather the crucial ones that give you a game, a set, or a match. That’s why, with just 54% of points, Federer could go on to win a remarkable 80% of his matches.

Investment Lessons from Roger Federer’s Stats

1. 54% is just a bit above the odds of getting heads or tails when flipping a coin, so if we apply the above numbers to investment, we could say that getting profitable returns on half of our investments is already a good start. Even so, all of us in finance know that those extra 4% can give us a significant edge when it comes to the financial markets. In other words, no edge should be taken for granted.
2. Something else we can take away from Federer’s stats is that the right risk/reward ratio can completely change the game. In tennis, losing a point is not the same when you are at 15-all as when you’re serving and down 30-40. This is the same in investment, where distribution of winnings can be diversified: numerous small wins punctuated by a few large losses, or large profits peppered with many small losses. The ratio between your average win and loss will determine whether you generate a final profit or loss.

How all this works out, however, depends on your trading style.

Which Is Federer's Systematic Trading Style?

Before we delve into an example, let’s quickly go over two main different trading styles. In systematic trading, you may experience strategies with different ratios between wins and losses. 

• In a directional strategy, when the trend is missing, you must be adept at minimising the losses and letting the profits run once a direction begins. 
• In contrarian strategies, you can generate several small profits when the market is non-directional, and potentially large losses when the market takes a direction.

Federer has been losing 46 out of every 100 points up for grabs. This may seem significant, especially in the context of finance, but data analysis on many markets will quickly show that no market is ever in trend more than 50% of the time. 

That’s why Federer's strategy is not about the points he lost, but about the ones he won, resulting in him being “profitable” 80% of the time, making it an exceptional strategy capable of turning a profit in different market conditions. 

So, what we need to do is work on creating a system with such numbers, helping us to dominate the market, and be as successful in the investment industry as Roger Federer is in tennis. To do this, the first step is running a deep analysis of our trading, and applying sophisticated investment strategy, as well as overall, automation.

We can help with that, so do get in touch with us to discuss your plans. In the meantime, we wish you all the best in becoming the next Federer of investment!