The Tennis Hacker's Investment Guide: Winning the Loser's Game

The theme of The Tennis Hacker -- 'How Life Imitates Tennis' -- is a truism. Tennis has influenced investing in a major way. By studying tennis, economists have come up with a theory called 'the loser's game'.

Some university professor actually did a study watching and keeping statistics of amateur tennis matches. What the professor found is intuitive but not necessarily obvious: the player who made fewer mistakes usually won.

A man named Charles Ellis seized on the idea and applied it to the stock market. Ellis wrote in a seminal article in 1975 that investors who tried 'to beat the stock market' are doomed to fail. Ellis' 'loser theory' says you can not consistently beat the stock market but your portfolio can consistently match or mirror the stock market's results.

Ellis' article was fleshed out into a book Winning The Loser's Game.

The theory had a profound effect on another investment professional John Bogle who would go on to be an investment legend in his own right. Based on the principles Bogle went on to found the investment company Vanguard. Vanguard refined the loser theory into a strategy called 'index investing'. The strategy is brilliant in its simplicity: it doesn't try to pick the 'best stocks' but rather holds all the stocks in the market.

Resources:

The Loser's Game article by Charles D. Ellis