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Bogey fears can be costly to your wealth

20th May, 2024

Published in The Sunday Times on 19th May 2024.

There’s a well-known cognitive bias in behavioural economics referred to as risk aversion, or loss aversion, which notes that humans are motivated more forcefully by a fear of losing than by a desire to win. 

In the investing world, this manifests in a general reluctance to invest in the stock market and/or a reluctance to diversify, if participating in the stock market at all. It also shows up in a tendency to sell better performing investments over poorer performing ones. 

It turns out that loss aversion permeates the world of professional sports also and it’s here that I think we can draw some valuable lessons.

Loss aversion costs golfers a shot per tournament

In golf, the only measure of significance is the overall score at the end of eighteen holes. The objective is to get the ball into the hole in as few strokes as possible, on every hole. A golfer shouldn’t care whether they are putting for birdie, par, or bogey on a particular hole. However, it seems they do. 

Two professors at Wharton researched the putting of 421 golfers on the PGA Tour in more than 230 tournaments over a six-year period. Using over 2.5m laser-measured putts, they measured the success rate of identical putts for birdie, par, and bogey. Each hole has a par – and so a bogey is viewed as a loss and a birdie is viewed as a gain. 

The analysis found that on the PGA tour, a golfer is less successful when lining up a putt for birdie than when lining up the exact same putt for par. This is evidence that players are evaluating decisions in the short term rather than in aggregate. Researchers were careful to measure the exact same distance, exact same location, and exact same hole. 

When the birdie putts were missed, they tended to leave the ball disproportionately short, rather than long, evidencing a conservative approach. 

On the birdie putts, the mental approach is “let’s get this to the hole and see what happens”, but when threatened with a potential bogey, the approach is “this one I have to make”. 

The average golfer overvalues individual holes at the expense of his overall score and the researchers concluded that it costs on average one shot per 72-round tournament. 

Ice hockey coaches are loss-averse 

In 2016, Sports Illustrated nominated the so-called ‘Miracle on Ice’ as the greatest sporting moment in history. Against overwhelming odds, the United States ice hockey team beat the four-time defending gold medallists, the Soviet Union at the 1980 Winter Olympics in Lake Placid, New York. The U.S. went on to clinch the gold medal by beating Finland in their final match. 

During the match, the U.S. went 4-3 ahead with ten minutes to play in the third period. The Russian coach did not pull his goalie to substitute on a sixth attacker. 

Pulling the goalie is a controversial tactic. It improves your chances of scoring a goal and tying the game but is risky as it exposes a team to letting in more goals. Coaches are so averse to the potential loss of an empty-net goal and the ridicule that might accompany it, that they wait until it’s too late to bring on a sixth attacker. Over the course of a season, two researchers calculated that it would mean almost one extra win per year.

The analogy with investing should be clear. Your goal is the most favourable total at the end – it shouldn’t matter how you get there. However, that doesn’t seem to be the case for most investors.

We are thinking about risk all wrong

The risk that golfers are trying to manage is the score on each hole – not the aggregate – to their detriment. The risk that ice hockey coaches are trying to manage is goals scored against – to their detriment. The risks that most investors are trying to manage when making investment decisions is volatility and short-term capital loss – again, to their detriment. 

If your measure of risk is faulty, you’ll make the wrong decisions. 

You should start by asking yourself this question. Which is more important in terms of an investment you are going to make; (1) to preserve the value of the principal and protect it from volatility, or (2) to maintain the real (after inflation) value of your investment over time? They are incompatible objectives, so you must choose one or the other.

In my experience, most clients want the first objective, but actually need the second one. Every long-term investor’s goal should be to protect the real value of their savings. It’s not easy to let go of the inclination to want to avoid short-term losses and volatility (to reference the par of each hole), but better outcomes will follow if you do. 

Gary Connolly is Investment Director at Davy. He can be contacted at or on twitter @gconno1.

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