Charley Ellis recognized that there were two different games being played in the stock market. The game the experts play differs from the game the amateurs play.

When the amateurs try to play the experts’ game they frequently make mistakes and lose money. That’s not to say the experts are fantastic at making money. A few are but experts, on average, fail to beat the market too. So the majority of experts fall short of the market and the amateurs, emulating experts, do worse.

Ellis’s solution is to play a different game entirely. The game amateurs should play, and many experts too, is built on a foundation of avoiding errors. Essentially, not losing. Fewer errors lead to better results.

Ellis wrote this in his 1975 classic The Loser’s Game. In it, he used an analogy between tennis and investing. It turns out there are two different games in tennis too. The game the professionals play is not the same game as the one the amateurs play.

The pros can be aggressive. They have the skill, precision, and experience to place shots just outside their opponent’s reach. They play a winner’s game. The match goes to the player who earns the most wins.

Amateurs, however, often lose by trying to play like the pros, because it leads to unforced errors. It’s a loser’s game. Amateurs win in tennis by volleying until their opponent hits it into the net or out of bounds. They win by not losing. Continue Reading…