Source: Red and Green As centralized investors, our goal is to have a greater understanding of our companies than any Wall Street investor. If we are willing to work hard and learn as much as possible about our companies, we are likely to know more than general investors, which is all we need to gain a competitive advantage. On the product structure side, the operating income of products worth 10-30 billion yuan is 401/1288/60 million yuan, respectively, in 2023, the overall sales volume of the company reached 18,000 kiloliters, a year-on-year increase of 28.10%, showing significant growth.

If you understand the scoring rules of tennis matches, you will know that it is more like a competition of intelligence and spirit, rather than just a physical and technical contest. For investors, tennis teaches us to focus on the long-term, concentrate on the process, not dwell on mistakes, make marginal improvements, and avoid making hasty decisions in emotional fluctuations. This is true for tennis matches, investments, and life.

In tennis matches, a game often lasts two to three hours, a tournament lasts for two weeks, but a professional career may last for more than 10 years. It is almost impossible to achieve good results in every tournament. Even great players like Federer, Djokovic, Nadal, etc., may experience months or even years of downturns due to injuries, form, and other issues.

Similarly, for investors, it may not be difficult to achieve considerable returns within a quarter or a year. However, it becomes extremely challenging to achieve long-term outstanding investment results over several decades, crossing different market cycles. As the investment environment continues to change, sticking to proven investment principles is key, and adaptability is also crucial.

Professional tennis players not only need to hone their own skills, but also need to adjust their strategies along with their opponents and match conditions, in order to improve decision quality and mental resilience. This is an essential part of improving long-term win rates. In addition, in tennis matches, winning does not require winning the majority of the points. A slight advantage in key points can translate into outstanding results in the long run. This is particularly relevant to investments.

1. The difference between outstanding and great tennis players

Roger Federer is one of the greatest contemporary tennis players, winning 20 Grand Slam titles in his career and maintaining the world No. 1 position for as long as 310 weeks. In June 2024, Federer was invited to deliver a wonderful speech at the 2024 graduation ceremony of Dartmouth College in the USA.

A thought-provoking quote from the speech:

"In tennis, perfection is impossible… Out of the 1526 singles matches I've played in my career, I won almost 80% of the matches… Now, I want to ask all of you a question… What percentage of POINTS do you think I won in those matches?

Only 54%.

In other words, even for top tennis players, the points won amount to just a little over half of their total match score.

When you lose a point, you have to learn not to dwell too much on every shot.

You have to teach yourself to think this way: Okay, I hit a double fault, but it's just one point. Okay, I came to the net and got passed, but it's just one point. Even if I hit a brilliant shot, a lob followed by a backhand smash making it into ESPN's Top 10, but it's just one point.

...The point you are playing is the most important thing in the world. But when it's over, it's over... Maintaining this mindset is crucial because it allows you to fully immerse yourself in the next point... and the next one after that... with complete focus, clear thinking, and unwavering attention.

In fact, no matter what competition you engage in life, sometimes you will lose: lose a point, a game, a season, a job... Life is like a roller coaster, with many ups and downs. When you are feeling down, self-doubt and self-pity are natural.

By the way, your opponent also experiences self-doubt, never forget this. But negativity is a form of self-depletion, you need to become a master of overcoming challenges. For me, this is the true mark of a champion. The most outstanding people in the world are not excellent because they win every point, but because they know they will lose... again and again... then they learn how to deal with it.

To reiterate, in 80% of the professional matches Federer won, he only won 54% of the total points.

In 1999, early in his professional career, Federer was ranked outside the top 100. That year, he won 43% of his matches, yet won 49% of the total points. By 2001, he had broken into the top 50 in the world rankings, his match win rate increased to 70%, and the total points won slightly rose to 52%. In 2005, Federer only marginally raised his total points won percentage by 3 points to 55%, yet by then he had become the rightfully undisputed world number one in tennis, winning 95% of his matches, displaying absolute dominance.

In the remaining time of his professional career, Federer's total points won percentage in matches continued to hover around 54%.

Small changes in the points won percentage have an exponential impact on the match win rate.

It's not just Federer. From 1998 to 2021, the data of the top 50 male tennis players in the world also show a similar pattern.

If we divide top players into four groups based on rankings: the first group consists of the top 3 players, Federer, Nadal, and Djokovic; the second group includes the remaining 7 players in the top 10; the third group consists of 20 players ranked 11-30; the fourth group comprises 20 players ranked 31-50.

As shown in the figure below, you can see two very intuitive trends: first, the higher the overall scoring rate, the more games won. This point is not difficult to understand. The second point, however, is counterintuitive. The two groups with higher rankings have scoring rates only 1-3 percentage points higher than the lower two groups, but the winning percentage is significantly higher by 10-30 percentage points.

II. Similar Patterns in the Stock Market and Tennis

We often say that the stock market is basically a turbulent process in the short term, but it has a very high winning rate in the long term. From the data, in the past 100 years, the s&p 500 index has only seen a single-day return increase or remain flat for about 54% of the time, just like Federer. What's even more interesting is that the average decline on days when the index falls is even slightly greater than the average increase on days when the index rises.

However, despite the s&p 500 index's average daily return of only 0.03%, the stock market has shown a remarkable compound return in the long term. If we consider only price (excluding dividends), the s&p 500 index has increased by nearly 39000% since 1927. If we reinvest at the average dividend yield at the time (3.7%), the total return from 1927 to the present would be an astounding 1300000%.

Indeed, no one has such a long time span, but overall, if you can detach yourself and ignore the daily fluctuations of the index, the returns brought by compounding are still very significant. And the longer the time, the higher the probability of success.

If Federer gives up every time he loses a point or gets broken, he cannot win 20 Grand Slam championships. In the stock market, if you focus too much on short-term results, it is difficult to become a successful investor. Some insignificant advantages, accumulated over a long period of time, can also create miracles.

Three, competitive advantages come from subtle differences.

In professional tennis, a 1% difference in scoring rate is enough to distinguish a few great players from good players. 1% may seem insignificant, but it requires tremendous skill preparation and effort.

A 1% difference is referred to as "marginal improvement" in investing. The core goal of investors is to strive to outperform the market over the long term and improve the accuracy of decision-making. To achieve this goal, common approaches include reviewing past decisions, conducting more in-depth research, and cultivating a more mature mindset, etc. Building these competitive advantages requires a lot of time and effort, but they are often difficult to perceive in the short term. However, these subtle differences, over time, can generate tremendous compounding effects. This is crucial for long-term results.

"It's just one point."

A tennis match is a process of constantly encountering and solving problems. A match is often determined by several key points, and you must constantly deal with your emotional ups and downs, invest energy in those decisive moments, reduce unforced errors, and make winning shots. On the surface, the technical differences between professional players are very small, but in reality, every point, every game, and every set of a match involves a large number of decisions, and these subtle differences in decisions often determine the course of the match...

Achieving long-term performance does not mean that every decision is correct. The winning percentage of top tennis players is not significantly higher than others, and Federer can only win about 54% of points. In order to achieve ultimate victory, you don't need to make the right decision every time. Don't dwell on the previous mistake, but seize the present and truly important opportunities and develop the ability to quickly adjust from short-term failures and frustrated emotions.

On the other hand, focusing on achieving long-term investment returns means not being distracted by short-term noise that may occur at any time. Successful investment often requires reverse thinking, so noise is inevitable. Many investors are often attracted to securities that are popular in the market. However, choosing to invest in unpopular areas means that it may take a long time before the market recognizes you.

Fifth, Buffett's 5% home run

Buffett's 1998 speech at the University of Florida also illustrates the above point:

"People always say learn from mistakes, but I think it's best to learn from other people's mistakes. However, at Berkshire, our principle is to let the past be the past... We never dwell on what has already happened.

We believe that there is so much to look forward to in the future, so why worry about the past... It's useless to dwell on the past. Life can only look forward...

Perhaps you can learn something from your mistakes, but the most important thing is to only invest in businesses that you can understand. If, like many people, you step outside of your circle of competence, listen to other people's news and buy stocks that you have no knowledge about, and make such mistakes, you need to reflect and remember to only invest in businesses that you can understand."

In Buffett's 58-year investment career, there have been 12 super successful experiences, creating the present-day Berkshire Hathaway. These truly successful investment decisions account for less than 5% of his total decisions. "Intrinsic value" vs. "owner's intrinsic value" | Long-term holding or selling when it's good? If Buffett is like this, how can ordinary investors not make mistakes? For ordinary people, what is truly important is to reduce the number of decisions, improve the quality of decisions, continuously improve the investment process, and gain their own key advantages.

6. Think Long-term and Believe in the Process

Federer is a master of long-termism: his playing style is smooth and efficient, without placing excessive burden on his body; he knows how to reach his peak state in the most important grand slam events, even if he encounters some setbacks in the earlier tournaments. Sometimes, he takes on higher risks in smaller events to practice new tactics, in order to achieve long-term gains.

Graham said, "The stock market is a voting machine in the short run and a weighing machine in the long run." In short, you do not know how the stock price will change in the next 12 months. If your analysis is correct, you will ultimately receive the value you deserve. And if you can ignore the distractions of daily news and quarterly performance, and focus on the long-term prospects of the company, you are more likely to achieve outstanding investment returns.

Perhaps the most important point of successful investment is to carefully seek out and stick to a method that suits oneself. For example, if you adhere to the principles of value investing, this method is effective in the long run. But in times of adversity, you need to believe in this process, because no method is effective every year.

The stock market is an excellent mechanism for transferring wealth from those without patience to those with patience. The key to staying patient is not to overreact to short-term "scoreboards." This is easier said than done, as you may have to endure being outperformed by other investors for months or even years, some of whom may be your family, friends, or neighbors. You need a Zen-like mentality, like Federer, in order to not be affected by this.

7. Do Not Ignore the Power of Marginal Improvement

The relentless pursuit of great tennis players increases the likelihood of long-term success in their careers. In this process, small improvements in game techniques and decision-making can greatly increase the chances of winning in the long run.

And in the process of investing for long-term returns, there will be short-term pain. Just like top tennis players don't win every point, great investors don't always perform well every month or every year. The key to long-term success is to stick to your investment philosophy in different market cycles and pay attention to marginal improvements in the investment process. In the long run, even small marginal improvements can have a huge impact.

Expand your toolkit.

Finally, let's take a look at another paragraph from Federer's speech:

"... I try to beat the baseliners from the baseline. I try to beat the attackers by attacking. I try to beat the net players by going to the net."

"If a player has a strong forehand, I'll try to hit to his backhand, but now... I'll try to chase down his forehand."

"... You need to have a whole set of technical skills... so that if one of them fails, you still have other skills to rely on. When your match enters this mode, winning becomes relatively easy."

This reminds me of the endless debate in the investment world about "value" and "growth". In my opinion, this discussion is meaningless.

For investors, what we really want to look for is "undervaluation", whether it is the undervaluation of tangible assets and cash flow at present or the undervaluation of future growth and profit potential. Sometimes, the market undervalues both aspects at the same time, and this is the best time to invest. Therefore, investors should maintain an open mind and not turn a blind eye to the opportunities for Graham-style investments, even for those investors who are willing to buy excellent companies at reasonable prices. As Federer said, "Raise your level of play, expand your range of choices."

Editor / jayden