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Competitive Investing: Creating a Meaningful Portfolio Value

Competitive Investing: Creating a Meaningful Portfolio Value

January 05, 2024

“It’s not a competition,” I said, hoping that word might jolt my audience into discovering the futility of two people trying to contend for investing superiority.

 

“Try telling that to him!” my client said, referring to his brother-in-law, and slamming the door shut on my hope.

 

“I get it,” I responded, “But if it’s a competition, then how do you know when you’ve won?”

 

The response to this question didn’t come nearly as quickly, and the slower pace of the response told me that the gears were still turning, “When you die,” he said.

 

Sensing a swing in momentum, I asked, “If you are dead when the competition ends, then what good is it to win the competition?”

 

“Well, not much,” he relented.

 

Competitive Investing


In virtually every interaction I have with another human being, I am reminded of how important it is to realize the implications of the words we choose, the statements we construct with our words, and the thoughts that inform both. In the exchange depicted above, I certainly felt something was missing, and in particular, it seemed that more needed to be understood about what it would truly mean to compete with someone else for investment returns.

 

Generally speaking, there are two ways to determine a winner of a competition: qualitatively or quantitatively. Qualitative competitions employ judges to determine a winner, which means that the declaration, as a matter of opinion, is subjective. Conversely, quantitative competitions are objective, with winners being determined by at least one metric.

 

Since I have never heard of a competitive investing judge, I am going to assume that makes competitive investing a quantitative matter, akin to a sport. Accordingly, if the activity is akin to a sport, then the participants should be akin to athletes, no?

 

Assuming we all agree with that, and of course, we should, this must mean that athletes competing at investing do so with an objective related to wealth accumulation, as measured by portfolio value. Given that, the winner must be determined based upon one of two standards:

  • Who grew their portfolio to a pre-determined amount first
  • Or whose portfolio value was greatest upon a pre-determined amount of time expiring.

Either way, that would make time and portfolio value the pertinent metrics for determining a winner.


How the Game is Played 


Now that we have established the basic idea behind competitive investing if some of us are going to participate in the sport as athletes, we need to put a finer point on some of the details of how you play the game. Here’s a starting point: how do you recognize a sport when you see one? For example, if you happened to be channel surfing and you stumbled upon a game, say, a basketball game, how would you know what game was being played?

 

At the mere mention of the phrase basketball game, I’d be willing to bet that a visualization of a game of basketball came to mind for most of you. Further, I’d also be willing to bet that what came to mind for one person was very similar to any other. Assuming I’m correct, this means that certain things, not random things, are associated with the game. Things such as a wooden floor, an arena filled with fans, cheerleaders, uniforms, etc.

 

All of that might seem obvious, but here’s why it matters: what if someone had never seen a basketball game and asked you to describe it? Would the things listed above tell them what they need to know? Or is there something else, something unique, that is necessary to define a game of basketball or any other game?

 

Alternatively, why do fans act, well, fanatically? Are basketball fans enthralled with how aesthetically pleasing a freshly waxed wooden floor can be? Are concessions the finest dining that money can buy? Do uniforms represent the latest fashion trend?

 

Enough for being subtle—I’m trying to draw your attention to the players. Specifically, the behavior of the players. Fans of basketball act fanatically because they care about the outcomes of games, which means they care about the performance of the players.

 

Further, it is the specific behavior of the players that would need to be described for someone to understand the game of basketball. This means that it is the behavior of the players that explains how someone would recognize a game of basketball. Simply put, the nature of a competitive event is defined by what the competitors must do to participate and pursue the objective.

 

In any competition, the behavior of the competitors will obviously include activities aimed at achieving the objective. Sometimes competitions also include behavior where one competitor, or a team of competitors, is aimed at preventing the other side from achieving the objective. Generally, we call the former offense and the latter defense.

 

In the context of competitive investing, offensive strategies and tactics would seem to be relatively straightforward—anything that is aimed at growing one’s portfolio. Determining what strategies and tactics could be employed for purposes of defense would seem to be a different matter, though. A complicating factor is that it’s not obvious that you can even play defense—there doesn’t seem to be a legal way to interfere with the growth of someone else’s portfolio.

 

If there are no legal ways to impede the growth of someone else’s portfolio, then that must mean that defense, as a whole, is not part of the game of competitive investing. Consequently, competitive investing must be more akin to a footrace, like a 100-meter sprint, than something like a game of basketball. As such, the objective must be to grow one’s portfolio value to a pre-determined value, just like the objective of a footrace is to cover a pre-determined distance, and the winner is simply the one who accomplishes that task in the least amount of time.

 

Thus far, we have determined two important things about competitive objectives that must be true. First, we should be able to recognize a competitive investor based on their behavior. Specifically, the behavior aimed at achieving the objective. Therefore, it could be said that objectives inform, or explain behavior. Second, the objective is the standard that separates success from failure. Given those two points, that would seem to make objectives pretty noteworthy.

 

How do We Determine a Meaningful Portfolio Value?


At the risk of making myself unnecessarily vulnerable, I’m going to come clean and share that in my financial education and training, I was not taught about competitive investing. Now, before anyone gets carried away in thinking that must mean that competitive investing isn’t real, I just have one question: if it’s not real, then why do we have competitors? Hhhmmm?

 

Anyway, getting back on track, given that I was not educated about competitive investing, I was also not informed about any standard objectives involved in the sport. What I mean by this might be most easily understood via the example of a foot race.

 

The distance the competitors must travel in a race is one component of the objective, with the time it takes to cover that distance being the other. The distances involved with the various races associated with, say, the Olympics are standard. In other words, they have been, and continue to be, the same across time and competition. An important implication of this is simply that a competitor has no say in shaping the objective—accept it or don’t compete.

 

Given the lack of attention given to standard competitive investing objectives in my financial education, I’m going to assume this means that objectives must not be the same across time and competitions. In other words, they are determined by negotiation between competitors immediately before the commencement of competition. If we add this point to what we already know about the objectives of competitive investing, then we can say that we get to choose, or at least participate in the decision concerning, what the standard should be that determines how we will behave and whether we experience success or failure—no pressure.

 

Assuming that the discussion concerning an objective is a proper negotiation between competitors, then we would obviously want to start with a realistic number. Like any other negotiation, though, it would seem that we would want to also look out for our own best interest and try to steer the negotiation toward the most meaningful objective possible. Given that we’ve already established that the objective is going to be to accumulate a specified amount in as little time as possible, this means that we are choosing a value toward which we will aim to grow our investment portfolio. Further, if this value is, in fact, meaningful, then we are not dealing with an arbitrary process or value.

 

A natural question would seem to arise out of this: how do we determine a meaningful portfolio value? I feel compelled to warn you: this is where the idea of investing being a competitive sport starts to break down. To anyone disappointed by that revelation, feel free to step away for a minute to collect yourself and process your emotions.

 

What does money do for us? It obviously buys things, but it’s what those things represent that really matters—what we need and what we want. The importance of what we need and what we want might seem obvious, but the most relevant consideration is probably that, to the extent we are unable to obtain what we need and what we want, those things go a long way toward determining the amount of stress we carry and the amount of joy we are afforded as a reprieve.

 

Brace yourself: do all people need and want the same things? Sure, we can find some similarities in the most basic needs, and maybe we stumble upon some commonalities elsewhere, but as soon as you move beyond the basics, individuals, and the lives they lead, begin to fray. Further, what is an investment, or a basket of investments, like a portfolio, if not a holding place for money, or a store of value, to preserve or increase our ability to obtain the things we want and need in the future?

 

Simply put, this means that there is a very low likelihood that a certain portfolio value will be as meaningful to one person as it is to another. That is not to say that one person can't determine that a certain portfolio value is as meaningful to him/her as it is to someone else, but if they do, it’s just a happy coincidence.

 

I hate to break it to ya’, but unless we are able to identify two people who have the same portfolio value objective, then we can’t have a competition. Such difficulty in coming up with competitions would seem to decimate the prospects for competitive investing to be recognized as a sport.

 

The fact that something isn’t a sport, though, obviously doesn’t mean it’s not a game. But the fact that something might be a game doesn’t necessarily mean that a participant will face a competitor. Such is the case with competitive investing, whose individualized objectives would seem to make it a Solitaire endeavor.


See what I did there?