From Esports to Investing

A Competitive Gamer’s Insights

Back in 2009, I formed a team to compete in Cyberathlete Amateur League’s Defense of the Ancients (DOTA) tournament. In those days, even the largest of professional esports tournaments’ prize pools rarely surpassed one hundred thousand dollars, a rounding error for today’s $40 million dollar purses. As you might expect, I wasn’t competing in the amateur scene for the money. Nonetheless, this one tournament did more for my long-term financial well-being than all the potential esports winnings ever could have.

Our newest teammate previously had a brief run on the professional stage. Thus, I was particularly excited at the prospects of improved mental models he might bring along. Little did I know, his most valuable contribution would not pertain to our shared gaming hobby. Instead, it is through this chance encounter that I was introduced to Peter Lynch’s “One Up on Wall Street”. Those 304 pages led me down the road of Graham-and-Doddsville and kicked off my investing journey.

More than a decade later, I would like to hereby reflect on some of the parallels I’ve experienced between the world of competitive gaming and that of investing.

Lesson 1: Select the strategy that suits you best

In the video game subgenre of MOBAs, each member of a five-man team needs to select one of more than 120 unique playable characters. During the match, these characters can be played in various roles. In my experience, most players will perform notably better in some role(s) than the others depending on their natural inclination.

Similarly, I am convinced that every investor must first determine which investment style best fits their personality traits, current network and inherent strengths. In fact, the previously mentioned teammate went on to become significantly more successful shorting equities into bankruptcy and delisting, than he ever was trying to acquire wonderful companies at fair prices and holding them long-term.

Lesson 2: Consider changes in meta

In the world of esports, a strategy’s drastic drop in performance is typically the result of one of the following:

  1. Most of the community adopts the same strategy, thereby eliminating the advantage it held over opposing teams

  2. A counterstrategy is developed to exploit the weaknesses of what was previously thought to be unstoppable

  3. A new patch is introduced, drastically changing the rules of the game and benefiting alternative approaches

Likewise, in investing, whether due to overcrowding in specific securities (1), the unanticipated rise of new competitors (2), or the disruption caused by new technologies or socioeconomic events (3), past performance may not be indicative of future results. Consequently, it is advantageous to avoid building a narrow investing identity. Limiting ourselves to a market sector or Morningstar’s definition of the “Growth vs. Value” dichotomy is bound to handicap us in times of change. We are best served by striving to understand the thought process of all players in the game and identifying the catalysts that will bring about change to the fundamentals of a company, industry or economic sector.

Lesson 3: Study replays and clone the pros

Many multiplayer strategy players will dismiss their lack of progression in the game’s ranked ladder to a lack of experience in relation to the higher ranked incumbents. Yet across a wide variety of titles, I was able to place in the 95th percentile with 50-75% less hours played than most competitors in my bracket. I strongly believe that this accelerated learning curve was made possible by the following:

  1. Gaining insights to professional players’ mindsets through interviews, Twitch streams or YouTube coaching sessions

  2. Analysing professional players’ replays and cloning their strategies

  3. Introspecting about my areas for improvement by reviewing lost games

Below are a few ways the novice investor can emulate the above methodology:

  1. Clone the cloner, Mohnish Pabrai, and spice up your showers by listening to nearly three decades of Berkshire Hathaway annual meetings from CNBC’s archive, or YouTube’s wealth of legendary investor interviews

  2. Demystify “recent replays”

    • Identify insiders with strong convictions via SC 13G or Form 4 filings

    • Evaluate the enthusiasm shared by “superinvestors” through their 13F filings

    • Leverage Value Investors Club or SeekingAlpha to gain insights into the potential thesis

    • Read through 10-Q and 10-K filings to assess the margin of safety while remaining mindful of your circle of competence

  3. Record your original investing thesis no later than at the time of purchase and rub your nose in your mistakes

Lesson 4: Minimize mistakes to win

Nearly every victory in competitive strategy games isn’t contingent on one flashy play; instead it goes to the party which made the least number of mistakes. Correspondingly, Charlie Munger has long praised the long-term advantage of “trying to be consistently not stupid, instead of trying to be very intelligent”.

Finally, all the above is a waste of time if you’re not having fun. Game on!