The lackluster performance of stocks this year has many investors fixated on whether a market correction may be just around the corner. How slowing global growth, higher interest rates or the outcome of the U.S. presidential election will impact markets has captivated investors around the world.

If you call Portland home, however, it’s hard not to be captivated by something else entirely: soccer’s Portland Timbers.

The Timbers, who in late October were on the cusp of missing the playoffs, will make their first-ever appearance in the MLS Cup—U.S. soccer’s version of the Super Bowl—this coming Sunday.

Portland’s first-round playoff victory over Sporting Kansas City was one of the most exciting games in U.S. soccer history. Tied at the end of regulation play and at the conclusion of two fifteen-minute overtime periods, the Timbers advanced 7-6 after a wild and dramatic shootout in which a total of 22 penalty kicks were attempted.

When a penalty kick is taken, the ball is placed 36 feet from the goal and a player attempts to kick the ball into the goal past the opposing goalkeeper. The ball covers the short distance so quickly that the goalie has virtually no time to react once the ball is kicked.

Like an investor, the goalkeeper is forced to make a decision in advance about an uncertain future event (which way the ball will be kicked). In anticipating how best to prevent a goal from being scored, the goalie is forced to choose whether to dive left, dive right, or remain rooted in the middle of the goal.

The Timbers’ stirring victory got us wondering if there was any statistical evidence to suggest which way the goalkeeper should dive to have the best chance of saving a goal. Thanks to a tip from a fellow adviser in Phoenix1, we now know there is:

In 2007, a group of researchers analyzed nearly 300 penalties taken in men’s professional soccer matches around the world.2 The study’s authors categorized the actions of both the goalies (jump left, jump right or stay centered) and the kickers (kick left, kick right, kick center). If the goalie guesses correctly, the odds of saving the kick increase significantly. If the goalie jumps the wrong way, there is no chance of a save (unless the kicker misses the goal).
As it turns out, the odds of a goalie stopping a penalty kick are extremely low: over 85% of the kicks analyzed resulted in goals. A goalie’s chances of stopping a penalty kick were:


14% if he jumped left
13% if he jumped right
33% if he stayed centered


For the best chance of making a save, therefore, the goalie should stay in the center of the goal and not jump to either side. Yet, the researchers were surprised by the goalkeepers’ actions:


49% jumped left
44% jumped right
6% stayed centered


Clearly, goalies have what is called an action bias. They believe jumping one direction or the other will be advantageous, yet the evidence points to the contrary. Why don’t more goalies follow the evidence instead of guessing each time?

The researchers hypothesized that emotions play a big role. If scored upon, the goalie might feel better (and so might the fans, coaches and team owner) about having allowed the goal if he’d taken a dramatic action in jumping one direction or another. Even if it lowers the chance of saving the goal, the goalkeeper might maintain self-confidence or increase the odds of keeping his job by “doing something,” even though staying put seems the better strategy.

Investors face similar decisions: No one knows which way the market will “kick the ball” tomorrow, next month or next year, but we must decide how to best invest our life’s savings. Should we jump in or out of the market? Add to, or lighten up on, a certain asset class? Or should we stay centered with our current portfolio and plan?

The answers to the above questions may come easy to clients of Vista. But it can be tempting to listen to fund managers and forecasters in the media pontificate on the future direction of the market. Often overlooked is the fact these experts are typically rewarded with air time because they guessed right once—that improbable penalty kick save. If their guesswork turns out wrong, well, the media has moved on to glorifying another fund manager who most recently happened to jump the right direction. As the publisher Steve Forbes once said, the short-term memory of readers is “one of the things we count on in the magazine business.”

Just as the soccer researchers concluded, investors who jump around overwhelmingly reduce their returns, not improve them. But is this time different?

Consider an investor who decided to invest $1 million in U.S. stocks back in December 2007. Keep in mind, Bear Stearns and Lehman Brothers would soon collapse and, in 2008, U.S. stocks would record their worst year since 1931.

Despite making what would seem an extremely ill-timed decision to buy stocks, that $1 million would be worth roughly $1.7 million today. In other words, even after allowing the first couple of proverbial penalty kicks to get past him, that investor would have earned a very respectable 7% per year.

Stay centered, and Go Timbers!


1 Thanks to Chuck Carroll, CFA of TFO Phoenix for alerting us to this study and the lesson therein for investors.
2 Bar Eli, Michael, Ofer H. Azar, Ilana Ritov, Yael Keidar-Levin and Galit Schein. “Action bias among elite soccer goalkeepers: The case of penalty kicks.” Journal of Economic Psychology, Vol. 28, No. 5, 2007.