The legendary Johan Cruyff, one of the most successful footballers of the last century, used extremely convincing strategies and techniques in sports. Learn here from Ben Ritchie, Head of European Equities, Aberdeen Standard Investments, what this has to do with good investments.
"Playing football is very simple, but playing simple football is the most difficult thing ever", Johan Cruyff once said. The counterpart to this from the world of finance comes from one of the most successful investors of all time, Warren Buffett: "Investing is simple, but not easy."
Although it may not be obvious at first glance, the "Wise Man of Omaha" has a lot of experience and "El Salvador (the Redeemer), as his fans called him, according to Ben Ritchie have much in common – integrity, authenticity and a long list of achievements. Buffett's sayings will be familiar to many investors. Here, on the eve of the European soccer championship, is Johan Cruyff's strategies. After all, he enjoyed the reputation of a football god not only as an active player on the pitch. It was also to his credit that he made FC Barcelona one of the top addresses in European club football.
Basics for success
Every successful coach has to lay the right foundations. One of Cruyff's greatest achievements at FC Barcelona was that he radically revamped the club's training academy and youth development, says investment expert. Under his leadership, the club changed its approach: instead of selecting players for their size and physicality, the emphasis was now on technical ability. Lionel Messi is a product of that change, and it laid the foundation for the flexible, variable attacking football that characterized the following 30 years, says Ritchie. Similarly, Ritchie believes asset managers create fundamentals that allow them to perform well in a wide variety of market cycles. The technical framework should consist of robust investment processes and an effective risk framework. On this basis, good investment ideas can emerge and talent can be nurtured.
A firm eye on long-term success
In asset management – as in football – assessment periods are getting shorter every year. Markets are increasingly obsessed with next quarter's earnings. The focus has shifted from long-term growth to short-term returns. Such short-termism often gets in the way of investment success, Ritchie says. It has been shown time and time again that a long-term approach is often more successful. Ritchie also draws a parallel here with Johan Cruyff, who apparently saw it similarly. His FC Barcelona became Spanish champions three times in a row (1991 to 1993) with largely the same team. He didn't get frantic and make panic buys when things weren't going well, nor did he sign so-called "talents of the century" after just one good game. What asset managers can learn from this? The ability to stay true to yourself pays off and is a testament to special skill, says Ritchie.
Another aspect of successful management is the willingness to develop contrary views and opinions, to take risks with a sense of proportion, and to do things that may seem outlandish to the competition. According to Ritchie, in the world of finance this can mean deviating strongly from the benchmark or implementing one's own best ideas with ample capital. Sometimes it takes courage to classify something that the market considers a "signal" as "noise".
Ritchie is convinced that Johan Cruyff would agree. When the 4-4-2 was virtually the norm in football, he switched to a 3-4-3 – a formation geared more to offense than defense. He also put England's reliable goal-scorer Gary Lineker on the wing. The professional world cried out – the decision seemed ridiculous. But the results spoke for themselves: after all, that's how Lineker set up the first goal in the 1989 European Cup Winners' Cup final.
Putting together the right team
Europe is a deep and diverse market. He offered a wide range of structural themes, ranging from being at the forefront of "responsible capitalism" to being a leader in the game and, on the ESG front, extend to the digitization of the industry. Looking at the old narrative that Europe is a favorable market facing structural challenges, the tide is now turning, Ritchie knows. Active asset managers should take the opportunity to cherry-pick the good companies on the continent. The real skill, however, lies in combining them into a coherent, powerful whole, like a good football team.
But one could also disagree with Cruyff. Because he avoided coaching his defenders and goalkeepers – one of his famous sayings was that he'd rather win 5-4 than 1-0. While this may be entertaining for viewers, it is likely to be nerve-wracking for many investors. Because robust, reliable assets should form the core of a portfolio. This can sometimes mean investing in companies with less growth potential, but also less volatile returns. Certainly, transferred to football, not many goals are to be expected from such "players", but they will probably not allow many goals against either. Consumer staples stocks like Nestle or high-quality pharmaceutical companies like Novo Nordisk fit this profile, according to the investment expert.
These defensive positions could be complemented by a midfield of creative, innovative players. Of which, Ritchie says Europe has many to offer. For example, the Danish company Ørsted, an operator of offshore wind farms, or Knorr-Bremse, a provider of environmentally friendly technologies for the transport sector. Dassault and Nemetschek, on the other hand, are active in the digitization of industry. The list could go on and on.
Now for the striker. A position with a changing profile that is often misunderstood. Prerequisites for success here, he said, are versatility and a good nose for a goal. Good examples are Spain's Fernando Torres or currently Poland's Robert Lewandowski. Again, Ritchie draws parallels. In Europe, he says, there are many companies with similar characteristics: they are still fairly young, but growing fast and chasing market share from their big rivals. Examples of this, he said, can be found in the technology sector, including Adyen, a provider of digital payment solutions for businesses, or Prosus, an investment company that invests in Internet companies.
This is what a Johan Cruyff-type portfolio could look like. So close to the start of the tournament, perhaps we should let him finish: "Technique does not mean being able to hold the ball up a thousand times. Then you can go to the circus. Technique means passing with a touch, at the right pace, into the right foot of your teammate." The right balance just.