You might be surprised to learn investing can be likened to taekwondo – and not because you’ll walk away battered and bruised. Rather, it is about respecting the arena and those who spar within it, and being able to anticipate moves while being mentally prepared to combat unpredictability head on.
Here are three ways that being an investor can be similar to being a taekwondo practitioner.
1. Scoring points
In taekwondo matches, you are awarded one point for a valid punch to the trunk; two points for a kick to the trunk; three points for a kick to the head; and four points for a spinning kick to the head.
In stock investing, you could liken dividends to obtaining one or two points; and capital growth, often viewed as big money to investors, to obtaining three or four points – a spinning kick delivered beautifully to your opponent’s head.
2. Punching and kicking
A taekwondo practitioner would need to know how to throw a punch or deliver a kick effectively. Newbies start with a front kick, roundhouse and back kick, before moving on to learning the axe kick, spinning kick, and rotational kicks that would enable them to score three or four points.
It is the same with investing. Newbies start with the basics, such as picking up the art of reading financial statements and learning how to evaluate stock, which would allow them to earn dividends – akin to getting one or two points in a taekwondo bout.
Over time, they might pick up a higher level of accounting and more comprehensive stock-valuation skills, allowing them to invest in stocks that could be multi-baggers. This would be like getting three or four points with a rotational kick.
One cannot expect capital growth without first knowing the basics. It would be like saying you want to get three or four points in a match without first learning how to deliver the most elementary kicks.
3. Winning matches
In taekwondo, matches are more often won through a consistent accumulation of one- or two-point strikes to the trunk. Often, highly skilled practitioners aim for 70-80% of moves that would earn them one to two points, and 20-30% of kicks aimed for the head.
Consistency is key. In the context of stock investing, portfolio diversification would allow you to have a wider pool of investments, with a list of dividend stocks as your main portfolio (one to two points) and a supplementary, smaller, list of growth stocks (three to four points).
4. Being strategic
Why do highly skilled exponents spend more time on getting one or two points? The answer is “calculated risks”. It takes more time and effort to deliver spinning kicks to the head, compared with landing a punch or a simple roundhouse kick to the trunk.
Also, in attempting a spinning kick, a martial artist’s body would likely be off-balanced. They would be at risk of falling to the mat, which could lead to a one-point deduction or open them up to a series of counter attacks from their opponent.
A spinning kick can be likened to a move that is “high risk, high returns”. A savvy practitioner must know when to deploy this kick without being viciously countered by his or her opponent.
Meanwhile, you can score points easily with a punch or basic kick to the trunk. This would be a “low risk, low returns” move.
In short, it’s all about strategy. Build your skills, knowledge and experience first before investing in the big leagues. Learn to anticipate how a stock would perform, much as how you would prepare for what your opponent might do during a taekwondo bout.
Only then are you assured of emerging a winner.
This article first appeared in KCLau.com.
Ian Tai is a financial content writer, dividend investor, and author of over 450 articles on finance featured in KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore. He is a regular host and presenter of a weekly financial webinar in KCLau.com.