Kim: How studying goalkeeping can improve your investing

Soccer in the United States has exploded in popularity among fans and participants. With the Indiana University men’s team winning its eighth national title last December and the Indy Eleven professional team getting ready to compete next April, soccer is only going to get bigger here.

Unlike regular-season games, tournament games can’t end in a draw. In these cases, if a game is tied at the end of regulation and remains tied after overtime, the game is decided by a shootout. The teams alternate five penalty kicks each. The team scoring the most goals wins.

A penalty kick involves a stationary ball placed 12 short yards from the goal line, the kicker and the goalkeeper. Elite players can blast kicks faster than 100 mph. So with the ball that close, the goalkeeper has virtually no time to react and has to guess whether to dive to the left or right to make the save.

A shootout is an exciting way to end a game, but what can this possibly have to do with investing?

Leave it to my friend Carl Richards, a certified financial planner in Park City, Utah, to draw an interesting parallel. He wrote “In Soccer and Investing, Bias is Toward Action,” which recently appeared on The New York Times’ Bucks blog.

Richards cited a statistical study of 286 penalty kicks from professional leagues and the World Cup. Each kick was coded by direction (left, right or center) and height (low, high and middle) and what the goalkeeper did.

Goalkeepers dove left or right 94 percent of the time. This was the correct guess (i.e. dive left/kick placed left) 40 percent of the time. However, even when they guessed correctly, they stopped only 25 percent to 30 percent of the kicks.

Goalkeepers actually have a third option, remain in the center, which they used only 6 percent of the time. However, when goalkeepers remained in the center and the kick was placed in the center, they made the save 60 percent of the time.

With about 30 percent of the kicks placed in the center, the goalkeeper would more than double her chances of making the save from about 13 percent to more than 33 percent by remaining stationary in the center of the goal.

If the numbers suggest diving left or right is vastly inferior to staying put, why do goalkeepers dive almost every time?

Goalkeepers, like investors, often make decisions based on their perceived need to “do something.” Diving left or right gives the impression the goalkeeper is making a heroic effort. Standing still does not.

Many investors feel the need to “do something” with their investments, particularly when the headlines and talking heads are jabbering about record highs and/or impending doom. Richards refers to the self-inflicted financial damage of diving left or right by repeatedly buying high and selling low as the “behavior gap.”

Formulate a plan and stick to it. It’s not easy to remain stationary at times it seems balls are being rocketed at you at 100 mph, but as Richards says, “Time in the market is the key, not timing the market.”•

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Kim is the chief operating officer and chief compliance officer for Kirr Marbach & Co. LLC, an investment adviser based in Columbus, Ind. He can be reached at (812) 376-9444 or mickey@kirrmar.com.