Gabriel Sacks, Co-Manager of abrdn Asia Focus plc, explores how discipline and resilience are essential for investing in Asia, where volatility often masks long-term opportunities.
I began playing tennis at an early age. My skill level has improved somewhat since then, but my best hope of triumphing at Wimbledon still lies in polishing off a portion of strawberries and cream in record time.
Two weaknesses in particular have come to define my game over the years. The first is my serve, which might be politely described as erratic. The second is a seemingly ingrained belief that every rally should be won as swiftly and as spectacularly as possible.
The latter deficiency reflects many investment philosophies. It can be all too tempting to bank on quick, big wins – and to capitulate when they fail to materialise.
This is why mental discipline is so important. In investing, as in tennis, failure frequently stems from behavioural biases. Exasperation, impetuosity, vulnerability under pressure – a fragile mindset is far from an ideal basis for success.
I see this a lot in Asia, the region in which my colleagues and I specialise. Perhaps because they are relatively unfamiliar with the region, many investors are easily spooked by short-term disappointments and other unforeseen events.
Take China. Formerly the world’s most acclaimed growth story, it has run into several stumbling blocks during the past few years. The COVID-19 pandemic, geopolitical tensions and the threat of a full-blown trade war with the US have all taken their toll.
Numerous asset types and investment styles have fallen out of fashion in light of these difficulties. Maybe most notably, the idea of looking for value in China has become all but passé.
Yet the world’s second-largest economy is now showing significant signs of recovery. As a result, those same asset types and investment styles are starting to appear attractive again.
Similarly, some investors have been unsettled by the recent border skirmishes between Thailand and Cambodia. Many see the clashes as proof that emerging markets (EMs) remain uncommonly volatile and even innately unstable.
The truth, though, is that volatility and instability can be found pretty much everywhere – not just in EMs but in their developed counterparts. These challenges simply take different forms, the more extreme of which normally turn out to be comparatively fleeting.
All this underlines the merits of patience and resilience. To return to our tennis analogy: faced with a tricky shot, merely keeping the ball in play tends to be a much wiser ploy than attempting to hit a sensational winner – or, worse still, hurling your racket to the ground and storming off court.
The reality of getting things wrong
In my opinion, the tennis player with the greatest mental discipline at present is Jannik Sinner. Earlier this year he secured his first Wimbledon title, beating Carlos Alcaraz.
What made this achievement genuinely remarkable was that Sinner had lost to the same opponent in the French Open final just weeks earlier. He won the first two sets but then squandered three championship points before at last being edged out after almost five-and-a-half hours of play. Some might suggest he “choked”, but I prefer to highlight the extraordinary strength he exhibited in bouncing back from such a defeat. (Amazingly, Alcaraz subsequently returned the favour at the US Open!)
A key lesson for investors is that markets, like sporting endeavours, are bound to disenchant occasionally. This does not mean we should buckle, give up entirely, try to force the pace or succumb to any other knee-jerk reaction likely only to bring further dismay.
At least in so far as is practical, we should instead stay calm. It might be prudent to make an adjustment, but the optimum response will seldom be more dramatic than that. The frustrations of the present should not blind us to the opportunities that still lie ahead.
A player like Sinner is always keenly aware that the next point, game, set, match or tournament will be along very soon. Equally, as investors, we should appreciate there is usually plenty of scope to recover from any setback.
Crucially, tennis also reminds us we do not have to be right all the time. By way of illustration, where do you think I would rank in the annals of the sport if I were to somehow become a professional and manage to win just over half of all the points I contest?
You may already know the answer, since this has become quite a popular statistic to quote in investment circles over the past year or so. I would actually rank within touching distance of the top. In fact, I would be Roger Federer.
In more than 1,500 singles matches between 1998 and 2022, overall, the Swiss maestro won 54% of the points he played. This was enough to earn victory in nearly 80% of his matches – which, in turn, was sufficient to rack up more than a hundred ATP Tour titles and 20 Grand Slam championships[1].
Such figures are well worth remembering when attempting to unearth Asia’s “hidden gems”. These are the smaller companies that underpin the region’s long-term growth and which my colleagues and I, drawing on quantitative analysis and on-the-ground insights, aim to identify.
The search for these businesses undoubtedly necessitates discipline. It demands persistence, composure and an acknowledgement that missteps are inevitable but redeemable. Above all, it requires a recognition that things should eventually work out in our favour if we learn to rise above all the noise.
I must confess that these attributes continue to elude me on a tennis court. Being focused and methodical is a tall order when you serve like I do. But when it comes to investing, ultimately, they are nigh on indispensable.
By Gabriel Sacks, Co-Manager of abrdn Asia Focus plc.
[1] See, for example, YouTube: “2024 Commencement Address by Roger Federer at Dartmouth”, July 2024 – https://www.youtube.com/watch?v=pqWUuYTcG-o.
