There are two types of games: "Winner’s Games" and "Loser’s Games." Now this doesn’t mean that losers play only certain games, while winners play other games. It has nothing to do with personality characteristics. By "Loser’s Game," I don’t mean that investors are losers. It is just a way to classify games to help us understand them better.
The outcome of any competitive game depends upon the actions of
both the winner and the loser of the game. This does not always imply
the winner’s actions will dominate the outcome. Many games are not won,
but rather, are lost. It is important to understand the distinction.
Winner’s Games are those games whose outcome is largely determined
by the actions of the winner. Loser’s Games are those games whose
outcome is largely determined by the actions of the loser.
Amateur tennis is a loser’s game. Non-highly-trained players do
not possess the skills to deliver excellent serves and returns with
consistency. An attempt to try harder to deliver superior shots,
compared to the opponent, will not meet with success, but double faults
and shots that go out of bounds. Trying harder to make great shots will
mean that you are giving the opponent points. The player is not only
competing against the other player, but also against the inherent
difficulties of the game. The more competitive the amateur tries to be,
the more the inherent difficulties of the game will beat him down.
The amateur who has not mastered the fundamentals of the game is
far better off just trying to deliver a shot within the tennis court
bounds than trying to outplay the opponent. Keep the ball in play and
give the opponent the opportunity to mess up the shot. And, the harder
the opponent tries, the more likely he will mess up!
If you were playing a professional tennis player, the situation
would change drastically. Professional tennis is a winner’s game.
Professional tennis players have mastered the fundamentals of the game.
You must not only master the fundamentals of the game to win, but you
must also deliver superior shots. You must outplay your
opponent to win. Returning the ball within court bounds is not enough.
The opponent probably won’t mess up and might well force a shot you
Investing is a loser’s game. It is a loser’s game, not only at the
amateur level, but also at the professional level. Over time, trying
harder to achieve superior returns will usually lead to inferior
returns. Trying to time the stock market, day trading, buying options,
and most active investment advice approaches investing as though it were
a winner’s game—believing you can actually conquer and beat the market.
If, for example, you had felt that the stock market was overvalued
and due for a correction, and you had remained out of the stock market
for the year 1995, you would have missed one of the market’s best years
ever. But, maybe, you also missed the big market drop of 1987. What
could you conclude from this? Probably, as with my streak of tennis
losses, you would tend to remember the victories (or, near victory shots
that led to losing the game!) and forget the defeats.
You reason that if only all your tennis shots or investment
decisions had been as great as the best ones you remember, you would
have won decisively! But, seeking that one great shot is what cost you the match.
You would tend to explain your victory as confirming proof of
market timing and your skill to do it, while the defeat would be
interpreted as only indicating a need to improve your methods slightly!
You are interpreting investing, and more specifically, market timing, as
though it were a winner’s game. It is not! It has never been shown that
anyone, I repeat anyone, can master stock market timing.
Looking for stocks you feel might go up ten or twenty times from
their present price in a few short years is also a form of trying to
invest in the stock market as though it were a winner’s game. Or, given
the late 1990’s you might be seeking growth stocks that go up 100 times
or more in a few short years!
After all, you recall Dell, Cisco, Yahoo, and other companies
which shot up by amazing amounts. To buy such speculative stocks implies
you feel confident in finding opportunities that are grossly
misevaluated by the market. Usually, you will not invest in the next
Dell or Cisco, but, rather, the next He-Ro apparel company of the day.
That is to say, a lousy investment. This can lead to huge losses.
Individual investors usually have not mastered business evaluation
and fundamental analysis sufficiently to actively select the very best
aggressively-chosen stocks from among the larger market. But don't feel
bad. The professionals who are paid millions of dollars haven't done
Understanding that investing is a loser’s game at heart should keep you
from trying to force too many shots. Rather than looking for one big
winner, aim for consistency in your results. The bulk of an intelligent
investor’s portfolio should be invested in high-quality, larger
companies purchased at reasonable prices. Such a portfolio will likely
beat, not only a market timer’s portfolio, but also a speculative
portfolio of "carefully" selected, aggressive stocks on a risk-adjusted
[This seemed familiar. Looking in my copy of The Investor's Anthology, this article looks like a rip-off (or adaptation) of The Loser's Game by Charles Ellis. Ellis also apparently wrote a book around the article called Winning the Loser's Game, now in it's sixth edition.]