It has been a great World Cup. Not as once-in-a-lifetime awesome as four years ago, when my two boys and I visited South Africa for a month during the 2010 World Cup. (Thank you again, hosts Gavin and Yvette!) But an exceptional sporting event, with high scoring, dramatic comebacks, and huge upsets. Not to mention a big U.S. victory against the run of play versus World Cup nemesis Ghana, followed by a tie against Portugal and a trip through to the knockout round.
None of the upsets were bigger than the Netherlands victory over holders Spain, in a rematch of the 2010 final with a very different result. (Spain beat Netherlands 1-0 in the last minute of extra time in 2010.) Netherlands dismantled Spain 5-1 in the first week, a demolition completed by Chile when they beat Spain 2-0, guaranteeing an early exit for the former World Cup champions. Three of the last four World Cup champions have failed to escape the group stage.
I’m a fan of the Oranje for two reasons. First, the Dutch are a small nation with a great football tradition. Johan Cruyff, one of the best players ever, pioneered the idea of Total Soccer with Ajax and Barcelona in the 1970s. They play attractive, attacking football, and have enjoyed success on the world stage out of proportion to their small population. Second and more important, I am one-quarter Dutch, and consider that ancestry the source of my congenital stubbornness and love for cheese.
You could say, “What a difference four years makes,” except Spain’s dominance lasted far past the last Cup. In 2012, they beat Italy 4-0 in the Euro 2012 final. Just a year ago, experts were declaring this Spanish side the greatest national team of all time. As of June 7, when FIFA froze its rankings prior to the World Cup, they were the #1 rated team in the world. “How are the mighty fallen.”
There is an interesting cluster of principles here. The first is about our desire to know what will happen. Since human beings dislike uncertainty, our brains impose patterns on data where none exist, to preserve the illusion that we can predict and thus control the future. Philadelphia sports fans suffer from a particularly virulent strain of this defect, alternating between shameless front-running (when the local team wins) and instant despair (at every unanticipated loss).
A second insight from football concerns the pursuit of excellence. In a free economy, or a competitive sports landscape, success spawns imitation, but it can also lead to innovation. When Holland lost to Spain in 2010, they did not go back, disassemble their unique style of soccer, and adopt Spain’s tika-taka passing game. Similarly, Barcelona demonstrated extraordinary dominance of club soccer early this decade, beating their opponents by a cumulative 16-6 in the knockout stages of the 2011 Champions League. They looked literally unbeatable. With the world’s best player, Lionel Messi, supported by Iniesta, Xavi, Dani Alves et al, how would they ever lose?
Yet just two years later, Bayern Munich beat Barca 7-0 in aggregate in the semi-final. And the year after that, Real Madrid in turn beat Bayern in the semis by an aggregate of 5-0.
It is hard indeed to stay on top.
As investors, we can perhaps draw some lessons from soccer. First, what is best practice? Is someone else doing something that confers a durable advantage for their clients? If so, we need to duplicate or clone that strategy. Second, we must always be skeptical of the idea of permanent superiority, whether of individual company, money manager, or investment style. Durable advantages are few and far between in the investment business. What appears to be out-performance is usually style, and no asset class out-performs forever.
We’ll be downing tools here at TGS at 4 p.m. tomorrow, when the U. S. Men’s National Team plays Belgium in the Round of 16. Go Yanks!