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Outlier’s Path

It’s Only a Point

I hope all of you had a restful and restorative Independence Day Weekend. I am sure we are all back at it and getting prepared for the coming week and the second half of the year.

Growing up in Queens, New York, my father would take my brother and me to play tennis in public parks in Flushing Meadows. The sport stuck with my brother, who still plays tennis with semi-pros today. Even though it didn’t stick with me, we were a family that watched many tennis matches growing up.

A few weeks ago, Franky Roberts on our Talent Team shared a quote from Roger Federer’s commencement speech at Dartmouth. Federer was born on August 8, 1981, in Basel, Switzerland, and is regarded as one of the greatest tennis players ever. He started young and won the Wimbledon boys’ singles and doubles in 1998. Federer would win 20 Grand Slam singles, including eight from Wimbledon (a record for men), six from Australia, five from the US, and one from France. He won Gold in doubles at the 2008 Beijing Olympics and Silver in singles at the 2012 London Olympics. He held the World #1 ranking for a record total of 310 weeks. He is known for his versatile and fluid game and outstanding sportsmanship on and off the court.

He announced his retirement from the sport in September 2022 and now has the freedom to give commencement speeches rather than train for his next match. He had three lessons: (1) effortless is a myth, (2) it’s only a point, and (3) life is bigger than the court.

Last week, we explored determination, grit, and perseverance, i.e., “effortless is a myth.” This week, let’s examine “it’s only a point,” and return to Federer’s quote that Franky shared: “Perfection is impossible. In the 1526 singles matches I played in my career, I won almost 80% of those matches. Now, I have a question for you. What percentage of points do you think I won in those matches? Only 54%. In other words, even top-ranked tennis players win barely more than half of the points they play. When you lose every second point on average, you learn not to dwell on every shot. You teach yourself to think…it’s only a point.”

Other great players, such as Rafael Nadal, Novak Djokovic, Roger Ferderer, Pete Sampras, Andre Agassi, and Andy Roddick, have point-win rates that range from 55% to 53%. Below that, who will remember or care? It seems surprising that such a slight edge differentiates world champions from irrelevance.

Investing is no different. It’s true in venture. At Sequoia, we are right about half the time. It’s true in the public markets. Any trader will tell you that there is about the same number of up-trading days as down days. In fact, from the beginning of 1928 through July 5, 2024, the S&P 500 has returned 315x (not including dividends). The index traded up from the prior trading day only 52.3% of the time. What makes a great trader or public investor is that they get up daily to produce a slight edge for an extended period. There are about 250 trading days in a year. For the S&P 500 to eke out a 10.5% annual return, it must compound just 4 basis points per trading day. For those of us trying to generate more than a 20% return per annum, we want to compound 7 basis points or more every trading day.

Company building is similar. Our companies must act on 51-49 (and at best 60-40) decisions daily. We want to take every decision seriously and make the best decision, but after that, we want to move on to the next important decision. Any of these decisions is only a point, but the stringing together of our best efforts on many ordinary points over a long period produces the arc of a champion.

Federer closes this section with the following: “When you’re playing a point, it has to be the most important thing in the world, and it is. But when it’s behind you, It’s behind you. This mindset is really crucial because it frees you to fully commit to the next point and the next point after that, with intensity, clarity, and focus. You want to become a master at overcoming hard moments. That is, to me, the sign of a champion.”

As we settle back into our game of choice, let’s try to make every point better than our previous points, every decision better than our earlier decisions, and every day better than our prior days. While we know that won’t happen every time, we do so to pursue the extraordinary and make every decade better than the last. It is our path to be legendary.