If you’ve ever played tennis, you’ve probably noticed that your ability to consistently hit good shots fades in and out. When you’re “on,” shots become effortless, leaving you wondering how you could ever miss. But without warning, the tide shifts, and the game becomes impossible. No matter what you do, you can’t keep the ball alive, and you can’t figure out why.
A good friend of mine, who is an excellent player, always reminds me that tennis comes down to footwork. If you get yourself in position with plenty of time to hit the shot, good things usually happen.
For argument’s sake, let’s say you can hit the ball well 90% of the time with proper footwork. But even when you’re off-balance, wrong-footed, or slow to react, good things occasionally happen. You can still hit a good shot about 40% of the time. That means that four out of every 10 times you’ll do the wrong thing and get a good result — with each accidental success further proving that you don’t really need good footwork after all.
But sooner or later, the odds play out, and poor footwork causes a cascade of errors. This results in frustration, confusion, and a loss. What works well in the short term can create poor long-term results.
This same dilemma is apparent in the divide between investing and trading.
Footwork in the Game of Investments
Technical indicators, such as momentum, mean reversion, and historical correlation, can lead you to believe a security is about to increase in price without thinking about the value of the underlying asset. But just like bad footwork, these things work frequently enough that they fool us into believing they’re sound principles.
The truth is that without understanding the true value of the underlying asset, any “investment” is just a gamble. As anyone who goes to casinos can attest, enough payoff will lead you to believe that gambling is easy money. But in a game of odds, every successful gamble is a false positive — only leading you to bet more money you’ll eventually lose.
There are no easy shortcuts, or as Charlie Munger said about investing: “It’s not supposed to be easy. Anyone who finds it easy is stupid.”
To take it a step further, use borrowed money. In the short term, leverage can help you win big with a modest outlay. If a trade is timed correctly while employing maximum leverage, the returns can be astronomical. (One successful leveraged trade is enough to convince you that you’re a genius.) But if you continually leverage odds against trades, all you’re doing is guaranteeing you’ll eventually go broke. It’s easy to forget that leverage is an amplifier of gains or losses, not the source of them.
So returning to my tennis game: Why do I refuse to focus on good footwork? Because it feels fantastic in the moment. There’s no better feeling in all of tennis than drilling an off-balance, risky shot when the pressure is on. It also leads me to consistently lose matches against players with inferior skills.
Someday, I’ll probably make the connection and start moving my feet. Until then, I’ll keep living for the moment.
This post originally appeared on Forbes.