Drawing parallels: 9 lessons from FIFA World cup for stock market investors

It’s Lionel Messi with the ball, dribbles, still Messi, dribbles 1, 2, 3 defenders, in the D, and it’s a goal! Welcome to the FIFA World Cup, where we analyse trends in the most popular game and apply them to our field of investing.

Bring ‘em on!
There are 32 teams who qualified for the FIFA World Cup Qatar 2022 and as many as 205 teams participated in the pre-qualification stages.

In the 1978 World Cup, there were only 95 teams who participated in pre-qualification stages and just 16 teams who qualified for the World Cup.

Till date, there are 80 teams who have qualified and played in World Cups over the years. The count keeps increasing every year, with Qatar being the latest entrant.

Despite the surge in participating countries over the decades, only eight teams have won the FIFA World Cup till date and only two continents have succeeded as champions of the FIFA World Cup, Europe and South America.

The leaders of the industry continue to find their way and excel even in a growing market with higher competitive intensities.

A good start is half the work done, but not this time!
With the FIFA World Cup kicking off in 1930, Uruguay had a good start, winning the 1930 and 1950 World Cups.

However, their joy was short-lived, and they failed to reach the finals in any of the subsequent World Cup editions. The initial spark did not convert into a long-term performance.

There were only 28 teams till 1950 but as the number of teams kept increasing, Uruguay found it tough to match the competition.

Don’t base long-term decisions on just the initial burst, understand the potential of an investment by judging its performance over a longer period.

Never say never
Morocco created history this World Cup by becoming the first African team to enter the semi-finals of any World Cup. It was unbelievable for many, but not to Morocco who put in years of hard work and perseverance to reach this stage, despite faltering.

They started their journey in 1962 but failed to qualify, reached group stage in 1970 but again failed to qualify in the next three editions, reached round of 16 in 1986, group stage in 1994 and 1998 but again didn’t qualify in the subsequent four editions. This didn’t deter them, they reached the group stage in 2018 and finally the semis in this edition.

The journey to becoming a big and successful investor/company in an ecosystem may not be easy when small, however, continuous effort and focus can help one achieve resounding success.

Complacency is a bad word
Italy emerged as finalist in World Cup editions in the 1970s, 1980s, 1990s and 2000s. They have been semi-finalists eight times, finalists six times, and World Champions four times. Despite these accomplishments, Italy failed to qualify for Qatar 2022 World Cup.

Never get complacent with your investments, monitor them at regular periods of time and replace them with other alternatives if the long-term thesis is distorted.

Form is temporary, class is permanent
Germany has emerged as the most consistent country, winning four titles and emerging as runners-up on four occasions. Since the 1950s, there is not a single decade gone by in which Germany was not a World Cup finalist.

Look for classic long-term compounders in your portfolio. These are key to the overall long-term growth and sustenance of one’s portfolio

Inconsistency is part of the game/way of life
Brazil has been a favourite of many football fans, filled with star-studded players. However, they have been inconsistent and performed only in bursts. Between 1950 and 1970, six world cups took place, with Brazil winning three times and being runners-up once.

After 1970 and prior to 1994, they failed to become finalists and again over 1994 to 2002, comprising three world cups, they won two times and were runners up 1 time.

Some stocks although inconsistent, perform exceedingly well over certain periods of time. Key is to identify those phases and make investments appropriately

United we fall, divided we stand
From 1930 to 1990, Russia emerged as semi-finalists only once. However, pos Croatia being carved out of Russia in 1990, Croatia has been a semi-finalist on three occasions in 1998, 2018 and 2022 World Cup editions.

Croatia has performed much better than Russia and that too, over a shorter period of time.

Carving out/demerger of a segment/business from its parent/conglomerate can help the entity perform better. Finding value-unlocking stocks through confirmed carve-outs/potential demergers is the key.

Old giving way to new
In a surprising move and contrary to popular choice, 37-year-old Cristiano Ronaldo was benched during the game against Switzerland in this year’s World Cup.

His replacement, 21-year-old Goncalo Ramos stunned fans by scoring a hattrick and playing a key role in Portugal’s 6-1 victory in that game.

It is important to identify stocks/sectors which have reached maturity/stagnation in growth and replace them with new and emerging ones.

Against the run of play
In a closely fought match, Argentina beat Netherlands 4-3 in this year’s World Cup quarter-finals by penalty kicks.

Everyone from team Argentina rushed to Lautaro Martinez who hit the winning penalty except Lionel Messi, who went and hugged his goalkeeper Emiliano Martinez, who saved two penalties. Saving a penalty is four times tougher than scoring one.

There are stocks that may have a low success probability but can deliver multibagger returns. It is important to identify and include such stocks as well in one portfolio in order to achieve above-average returns and not only chase consensus stocks with high success probability

We hope you enjoyed the journey of the most popular sport and its learnings from an investing point of view.

(Jaspreet Singh Arora is Chief Investments Officer, Research & Ranking; Franklin Moraes is AVP - Research at Research and Ranking)