Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 70

Dive or stay: the biases of goalkeepers and portfolio managers

Millions of fans around the world have tuned into to this year's World Cup in Brazil. Whether you love it or hate it, the penalty kick is one of the most exciting plays in football. As the striker approaches the ball, often with the outcome of the game hanging in the balance, the goalkeeper has a split second to decide what to do. It’s not unlike the plight of portfolio managers in today’s fast-paced market.

Dive left? Dive right? Stay standing in the centre between the goal posts? The odds aren’t good: fewer than one in five penalty kicks are not converted at this level of play.

In 2006, the World Cup Final between Italy and France came down to a penalty kick shootout. On the first kick, the French goalie chose to dive to his right. However, the shot from the Italian striker went straight down the middle. Had the French goalie stayed at home, the outcome of that shot, and perhaps the game, may have been different.

According to one study, goalkeepers choose to dive nearly 94% of the time.1 In response to the relatively even distribution of kicks between the goalposts, however, and the greater chance of saving those in the middle, goalkeepers who stand and defend the centre may experience a better outcome. Simply put, not taking action may be the best course of action.

Due to what behavioural researchers call action bias, a goalkeeper is expected to act. In the case of a penalty kick, the norm is to dive. A scored goal is perceived to be less disappointing when it follows action. Innate self-confidence, years of training and the crowd’s expectations further contribute to this suboptimal decision. If the goalie dives, he feels that he did his best to stop the ball, and so does almost everyone else.

Investment managers often fall into the same trap of action bias, trading frequently, with confidence that this action adds value. And whether the trades ultimately prove to be right or wrong, the manager who trades frequently looks like he's doing something to generate results. This is one of many behavioural traits contributing to widespread short-termism in the markets.

In recent years, the average holding period for a stock has dropped to about seven quarters (and many studies claim it is much shorter). All too often the concept of buy and hold investing has been subsumed by short-term trading strategies. Many of these trading strategies, which rely on top-down macro-economic calls, are often no better at predicting the future direction of the markets than the goalie who tries to guess which way the shot is going.

Such a short-term bias creates an enormous time-horizon arbitrage opportunity for individual and institutional investors who are willing to take a long-term view. Over very short time periods - say, one week - the average difference between the best- and worst-performing stocks usually comes down to a few percentage points. Move out to one-year and you will begin to see stocks that significantly outperform in any given year. However, as they say, there is no free lunch and many of these high-flying stocks will often see market sentiment turn against their lofty valuations and find themselves at the bottom of the league tables the following year.

By contrast, if you look at the performance dispersion between the best and worst stocks over a five-year period, the numbers becomes quite meaningful. Simply put, over the long-term, the cream rises to the top, with the top 10% of stocks outperforming the bottom 10% by over 160 percentage points. And a common thread among managers who consistently generate long-term results is a strong buy-and-hold mentality. Managers who look to invest in companies that are well-positioned to generate growth over multi-year time periods have the courage to do nothing when short-term trends and negative headlines have the traders running for the exits.

Portfolio managers can lengthen the investment horizon by avoiding the temptation to trade frequently, choosing instead to hold securities for longer periods. Though portfolio managers and goalkeepers are prone to act, an awareness of this action bias may help them recognise that inaction can be an optimal strategy. And deciding to hold the position has the potential to result in a better outcome for their clients — and fans.

 

Mariana Araujo is a Sao Paulo-based equity research analyst for MFS Investment Management.

 


 

Leave a Comment:

RELATED ARTICLES

What is a ‘long-term investor’?

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Retirement

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

Shares

Boom, bubble or alarm?

After a stellar 2025 to date for equities, warning signs - from speculative froth to stretched valuations - suggest the market’s calm may be masking deeper fragilities. Strategic rebalancing feels increasingly timely.

Property

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Economy

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Shares

Is the iPhone nearing its Blackberry moment?

Blackberry clung on to the superiority of keyboards at the beginning of the touchscreen era and paid the ultimate price. Could the rise of agentic AI and a new generation of hardware do something similar to Apple?

Fixed interest

Things may finally be turning for the bond market

The bond market is quietly regaining strength. As rate cuts loom and economic growth moderates, high-quality credit and global fixed income present renewed opportunities for investors seeking income and stability. 

Shares

The wisdom of buying absurdly expensive stocks (or not!)

Companies trading at over 10x revenue now account for over 20% of the MSCI World index, levels not seen since the dotcom bubble. Can these shares create lasting value, or are they destined to unravel?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.