The Mourinho effect and the Ronaldo effect

Like in football, there are two elements to successful stock market investment.

The first time British football fans will have heard of José Mourinho is the night of Wednesday the 9th of March, 2004. A Champions League knockout game between Mourinho’s Porto and Alex Ferguson’s Manchester United.

If you don’t know your football, Porto is a small club from Northern Portugal. Porto is basically invited to the Champions League to make up the numbers in the group stages. It wasn’t expected to make it to the knockout stages.

On that Wednesday night, Porto knocked Manchester United out of Europe with a 90th minute goal at Old Trafford. Ten weeks later, Porto were crowned Champions of Europe. And everyone wanted Mourinho.

He ended up moving to Chelsea where he won the league in his first season… then Inter Milan where he won the treble… then Real Madrid where he won the league.

So what makes Mourinho teams so successful? There are basically two elements: the Mourinho system, and the players’ talents. Mourinho’s teams have always had a lot of very expensive, talented players. No doubt about that. Having Cristiano Ronaldo, Zlatan Ibrahimovic and Frank Lampard on the field helps a lot.

But there’s more to it than that. All Mourinho teams play in a specific way. That’s the Mourinho effect. Porto’s Champions League win in 2004 with a team of nobodies proves how important his system is.

Investing isn’t just about stock picking

So where am I going with this…

I’m saying that, like in football, there’s two elements to successful stock market investment. There’s the strategy (let’s call that the Mourinho effect); and the skill (the Ronaldo effect).

Investing strategy is about picking the right kind of stocks with the right characteristics. Not all stocks are the same. Some are fast-growing. Some pay a high income. Some are volatile. Some are stable. Some go with the direction of the market, and some go against it.

You can know all this in advance, and design a strategy that gets you the type of stocks you want. (In my case, I’m simply looking for the fastest-growing stocks possible). Strategy tells you what kind of stocks to look for to achieve your goals. And strategy is massively underrated. If you use the right strategy – with no particular stock picking skill – you’ll likely have a successful investing career.

Stock picking skill is different. Stock picking skill is about finding the best possible companies within the overall strategy. Stock picking skill can help you get even more out of a good strategy. But stock picking skill is wasted if its not applied to a good strategy. A great stock picker can still end up with a dog’s dinner of a portfolio, which doesn’t achieve the investor’s goals.

What does this mean for you? Well it means that, even if you’re not a Cristiano Ronaldo when it comes to picking individual stocks, you can have a very successful investing career provided you follow the right strategy.

Live from Southwark Cathedral

I held a live event for Penny Share Letter subscribers the week before last at Southwark Cathedral, and this is basically what I talked about. I talked about the Mourinho side of investing. I showed a simple four-step strategy that can be used to massively improve your investing returns.

I didn’t talk about the intricacies of stock picking, or how to find great companies within a system. That’s a talk for another night.

The live event was reserved for Penny Share Letter subscribers. But I organised a crew to film the whole thing, and now its free for you to watch at your leisure. I be good like that!

Click here to watch my talk, about how better strategy can massively boost your stock market returns.

Once you’ve watched it, let me know what you think. Do you organise your investing around a strategy? I’m keen to hear – get me at sean@agora.co.uk.

 

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