What Investors Can Learn From Soccer Penalty Kicks


The return of volatility along with flat performance of stocks this year has many investors fixated on what may be just around the corner. There has been a tug of war between growing global economies & strong corporate earnings vs the potential of higher interest rates and concerns with trade wars. With a fair amount of uncertainty in the markets you might be wondering if there is something we should be doing to take advantage of the possible growth or minimize the potential risks. To answer this I wanted to share an interesting study highlighting the actions taken by soccer goalkeepers when defending against a penalty kick and how it relates to investor behavior.

When a penalty kick is taken, the ball is placed 36 feet from the goal and a player attempts to kick the ball into the goal past the opposing goalkeeper. The ball covers the short distance so quickly that the goalie has virtually no time to react once the ball is kicked. Like an investor, the goalkeeper is forced to make a decision in advance about an uncertain future event (which way the ball will be kicked). In anticipating how best to prevent a goal from being scored, the goalie is forced to choose whether to dive left, dive right, or remain rooted in the middle of the goal. In 2007, a group of researchers analyzed nearly 300 penalties taken in men’s professional soccer matches around the world.1 The study’s authors categorized the actions of both the goalies (jump left, jump right or stay centered) and the kickers (kick left, kick right, kick center). If the goalie guesses correctly, the odds of saving the kick increase significantly. If the goalie jumps the wrong way, there is no chance of a save (unless the kicker misses the goal). As it turns out, the odds of a goalie stopping a penalty kick are extremely low: over 85% of the kicks analyzed resulted in goals. A goalie’s chances of stopping a penalty kick were:

14% if he jumped left 13% if he jumped right 33% if he stayed centered

For the best chance of making a save, therefore, the goalie should stay in the center of the goal and not jump to either side. Yet, the researchers were surprised by the goalkeepers’ actions:

49% jumped left 44% jumped right 6% stayed centered

Clearly, goalies have what is called an action bias. They believe jumping one direction or the other will be advantageous, yet the evidence points to the contrary. Why don’t more goalies follow the evidence instead of guessing each time? The researchers hypothesized that emotions play a big role. If scored upon, the goalie might feel better (and so might the fans, coaches and team owner) about having allowed the goal if he’d taken a dramatic action in jumping one direction or another. Even if it lowers the chance of saving the goal, the goalkeeper might maintain self-confidence or increase the odds of keeping his job by “doing something,” even though staying put seems the better strategy. Investors face similar decisions: No one knows which way the market will “kick the ball” tomorrow, next month or next year, but we must decide how to best invest our life’s savings. Should we jump in or out of the market? Add to, or lighten up on, a certain asset class? Or should we stay centered with our current portfolio and plan? I have always advocated staying the course when things look uncertain, but it can be tempting to listen to news forecasters in the media preach on the future direction of the market. If their guesswork turns out wrong, well, the media has moved on to glorifying another expert. All this noise can be distracting and cause emotional reactions that would make an investor want to “do something,” when more often than not, “doing nothing” is the best option. Just as the soccer researchers concluded, investors who jump around overwhelmingly reduce their returns, not improve them. But is this time different? Consider an investor who decided to invest $100,000 CAD in U.S. stocks back in December 2007. Keep in mind, Bear Stearns and Lehman Brothers would soon collapse and, in 2008, U.S. stocks would record their worst year since 1931. Despite making what would seem an extremely ill-timed decision to buy stocks, that $100,000 would be worth roughly $240,000 today. In other words, even after allowing the first couple of proverbial penalty kicks to get past him, that investor would have earned a very respectable 8.25% per year.2 As always, if you have any questions about your portfolio we are happy to meet or discuss. I appreciate your business and trust, and questions are always welcome. Thank you, Andrew

1 Bar Eli, Michael, Ofer H. Azar, Ilana Ritov, Yael Keidar-Levin and Galit Schein. “Action bias among elite soccer goalkeepers: The case of penalty kicks.” Journal of Economic Psychology, Vol. 28, No. 5, 2007. 2 Morningstar Direct


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