This past summer, for the first time ever, Canadians were co-hosts of the world’s biggest tournament, soccer’s World Cup. A tournament full of scandals, drama, and controversy. A tournament that holds lessons for investors, especially in today’s volatile markets.
In the final match played on Sunday July 19th in New Jersey, reigning world champion Argentina faced off against Spain, the reigning European champion enjoying an unbeaten run that began with their Euro 2024 victory. Spain ended up winning the match in extra time. But here is what is interesting. During ninety minutes of regular time, the defending world champions, with many would argue the best player in the world and a tournament hero to boot, managed zero shots on goal. Over the same ninety minutes, Spain managed 15 shots on goal. For the whole game, including extra time, Argentina managed 2 shots with none on target; Spain managed 20 shots with 12 on target.
The Argentine goalkeeper, Emiliano Martínez, kept his team in the game with eleven saves, setting a World Cup record. In stoppage time, before extra time, Argentine player Enzo Fernández collected a second yellow card and was sent off. That was the culmination of a game in which the Argentine team spent much of the biggest ninety minutes of their lives arguing with the referee, challenging calls, and provoking opponents. As one observer put it, in the end, Argentina wasn’t fighting Spain anymore, they were fighting themselves.
This isn’t limited to soccer. In the 1970s, engineer Simon Ramo, co-founder of TRW, a defence and automotive conglomerate later bought by Northrop Grumman, analyzed tennis games. He concluded that there were effectively two different games. In professional tennis, “the Winner’s Game”, he found the game was mostly determined by the winner’s superior shots, accounting for about 80 per cent of points won. In contrast, in amateur tennis, “the Loser’s Game”, the loser’s mistakes accounted for about 80 per cent of points that were lost via unforced errors.
Charles Ellis applied Ramo’s findings to institutional investing in his article, The Loser’s Game, in 1975. He argued that earlier decades resembled a Winner’s Game, where skilled, active managers could outperform the market. By the time of his article, he argued that, with more professionals, more information, more competition, outperformance was harder and that the ‘game’ was won by avoiding mistakes and minimizing costs rather than by brilliant outperformance.
In the decades since, with ever increasing information, greater analytical tools and low-cost trading platforms, retail investing has also become a Loser’s Game. And data and evidence exist to support this view. Research by SPIVA, S&P Dow Jones Indices, has consistently found that most active funds underperform their benchmarks, especially over longer time horizons. Over ten years, for example, approximately 85 per cent of active funds underperformed their benchmark. DALBAR’s research found a consistent return gap from individual investors of approximately 1.2 percentage points per year over the last 20 years. Their data shows that investors earned less than the average fund because of poor buy / sell timing decisions.
So what are some of the big unforced errors retail investors make? And how can they avoid them?
Overtrading and overconfidence. A key research finding was that the most active 20 per cent of individual investors earned ~11.4 per cent annually versus ~18.5 per cent for the least active, largely due to trading costs and poor timing. Savvy investors might consider staving off action bias by automating contributions and creating decision rules against impulsive trades.
Chasing performance and market timing. Investors try to win by timing the market and chasing assets, precisely the type of behaviour that leads to unforced errors. More than half of the dollar flows into mutual funds chases last year's top-quintile winners, while investors cling to their losers, unwilling to sell and admit the mistake. That lopsidedness costs real money as the DALBAR study showed. Sticking to your long-term asset allocation and rebalancing on a regular schedule, not on emotion, is one way to avoid the Loser’s Game.
Under‑diversification and concentration risk. Concentrated bets, too much exposure to one stock or one sector, increases the chances of serious mistakes. Many individual investors hold only three to four stocks, with over a quarter holding just one. This lack of diversification hurts risk-adjusted returns, particularly for younger and less experienced investors. Diversifying broadly with low-cost index funds and ETFs, and avoiding large single-stock or sector bets, helps investors position for long-term success.
Leverage, fees, and tax inefficiency. Paying too much, borrowing too aggressively, and ignoring compounding drag are all examples of the Loser’s Game. They don't require being wrong about direction, just being careless about structure. Research suggests that retail investors who use leverage systematically underperform their non‑leveraged peers, with the impact greatest for inattentive and less sophisticated traders.
For many investors, there is a temptation to believe that investing is primarily a Winner’s Game; that they have to get their stock picks right or the timing of their buys and sells correct. But, as the World Cup final and much empirical research shows, the most successful strategy is to simply get out of your own way. As Charles Ellis himself said, “The saddest chapters in the long history of investing are tales about investors who suffered serious losses they brought on themselves by trying too hard or by succumbing to greed.”
