What Roger Federer Can Teach Us About Investing

I was playing tennis recently in the mountains.

The air was thinner. The ball was falling a little faster than I was used to. Everything felt just different enough to remind me that conditions matter.

And I was also reminded of a bad habit I have.

When I get an overhead, I get excited.

Instead of watching the ball all the way until it meets my racket, my eyes have a tendency to jump ahead.

I start looking at where I want the ball to go.

Which, as you might imagine, is not particularly helpful if I haven't hit the ball yet.

So I asked a friend who plays a lot of tennis about this.

His advice was simple:

Try to read the writing on the ball.

In other words, keep your eyes so intently focused on the ball that you can practically see the lettering as it comes toward you.

Don't look at where you want it to land.

First, see the ball.

That stuck with me.

Because I'm not sure this is just a tennis problem.

We Like to Look at Where We Want the Ball to Go

Dentists are trained to think in outcomes.

We diagnose a problem, create a treatment plan and execute.

If production is down, we improve systems.

If scheduling is weak, we fix scheduling.

If a procedure is difficult, we improve our skill.

That mindset serves us extraordinarily well in practice.

But it can get us into trouble as investors.

Because successful practice owners often approach investing by starting with the outcome we want:

“I need this much cash flow.”

“I want a 10% return.”

“Real estate used to produce this for me. Where can I find something that does it now?”

We're already looking across the court at where we want the ball to land.

Meanwhile, we haven't fully read the ball that's actually coming toward us.

And there's another part of tennis that makes this analogy even more relevant.

Not every ball has the same spin.

Some are flat.

Some have topspin.

Some have underspin.

Some kick high when they hit the court.

Others stay low and skid.

If you fail to recognize the spin, you can make a technically beautiful swing and still hit a terrible shot.

The Spin Has Changed

For a long stretch of time, investors became accustomed to a particular environment.

Money was cheap.

Credit was easy.

Asset values generally rose.

Real estate benefited from falling interest rates and expanding valuations.

It became relatively common to find investments offering attractive cash flow alongside appreciation.

Live in that environment long enough and it's easy to start believing those outcomes are normal.

Then the spin changed.

Interest rates moved.

Credit tightened.

Debt became more expensive.

Refinancing became harder.

Valuations came under pressure in parts of the market.

Deals that worked comfortably under one cost of capital stopped making sense under another.

Yet many investors are still asking:

Where can I get the return I used to get?

I think that's the wrong first question.

The Market Doesn't Care What Return You Need

The market does not know what income you need.

It doesn't know what return you're accustomed to receiving.

It doesn't care what number you put into a retirement projection.

It simply presents the opportunities available under today's conditions.

Our first job, therefore, isn't to demand a certain outcome.

We have to read the ball.

What are interest rates telling us?

What is happening with credit?

Where are valuations?

How much leverage is required to make the deal work?

What assumptions have to come true?

Where is the real cash flow coming from?

Those questions aren't nearly as exciting as:

“What does it pay?”

But they're often far more important.

When You Need the Investment to Work

Here's where this can become dangerous.

If you've already decided your portfolio must generate a certain return or must produce a certain amount of cash flow, you can begin forcing investments to fit an answer you've already chosen.

You stretch your underwriting.

Accept more leverage.

Overlook illiquidity.

Take risks you wouldn't otherwise take.

You start convincing yourself an opportunity works not because the investment became better, but because you need it to work.

That's an important distinction.

It is also one of the reasons I care so much about financial sovereignty.

Freedom Changes How You Play

Financial sovereignty isn't simply accumulating a large pile of money.

It's creating enough control that you don't have to force decisions.

Enough liquidity to wait.

Enough sources of income that every investment doesn't have to perform immediately.

Enough diversification that one deal doesn't carry the weight of your future.

Enough clarity about what “enough” means that you're not perpetually reaching for more.

That changes how you play the game.

Because sometimes the shot simply isn't there.

And you don't have to manufacture it.

You can keep the ball in play.

You can wait.

You can pass on a marginal opportunity.

You can say:

“That's not my shot.”

There is tremendous power in that.

Patience Is a Position

Investors often feel as though they should always be doing something.

Deploying capital. Buying. Selling. Optimizing.

But patience is a position.

Liquidity is a position.

Reducing leverage is a position.

Holding a good asset longer than expected can be a position.

Sometimes the highest-quality investment decision available is refusing to force a swing at a ball that isn't there to be attacked.

This requires discipline.

Intelligent investors anchor themselves to principles while adjusting their tactics to reality.

Because the conditions will change again.

The spin always does.

Keep Your Eye on the Ball

There will always be another forecast telling you where interest rates are headed.

Another prediction about the economy.

Another investment promising the return you've been looking for.

I don't believe our job is to predict the future perfectly.

Our job is to see the present clearly.

Know your liquidity.

Know your leverage.

Understand the duration of your investments.

Know where the cash flow comes from.

Know your counterparties.

And know whether you're investing because an opportunity is genuinely attractive—or because you've already decided where you need the ball to land.

I'm still working on this on the tennis court myself.

Keeping my eyes on the ball instead of looking prematurely toward the place I hope to put it.

It's a simple discipline.

But perhaps it's worth practicing with our money, too.

Your eye can't stay fixed on the outcome you want.

Read the writing on the ball.

The spin has changed.

Have you?