I have been an ardent fan of Liverpool Football Club for more than 10 years. Through the years, I have seen great players like Robbie Fowler, Michael Owen, Jamie Carragher and Steven Gerrard emerge from the academy and go on to achieve a great playing career.
Liverpool was one of the most successful football clubs in Europe back in the 70s and 80s. They won numerous English League titles during that period too. However, the club began its decline in the 1990s to the present time.
They have never won the English title since 1990. They came close to winning the title twice, in the 2008/2009 season and 2013/2014 season. Their last major trophy was in 2005, when they won the Champions League.
Watching my beloved Liverpool decline over the years really pains me, but it taught me some useful investing lessons too. I will share the 3 lessons with you.
Liverpool’s performance on the pitch over the years falls short on consistency. They can beat the big teams, but lose to a smaller team. There is no consistency in the team’s performance.
As a fan, we simply do not know when the team is performing well or performing badly. Just when you expect they will win, they lost or drew and vice versa.
As an investor, we do not like to invest in a company whose earning and profitability is not consistent. The company’s revenue can be high one year but plummet the next.
The company can be making profit one year, making loss in another and then profit again the year after.
Investors love to invest in companies with consistent increasing revenue and profit. With consistency, investors will feel assured when investing in such companies rather than having the roller coaster emotion of seeing the company’s performance going up and down.
Without consistency in the business, the share price will likely reflect the company’s performance over time – that is to remain stagnant or even fall.
2) Red Flag Indicator
Liverpool used to be a big club that attracts the top players. Players were once yearning to play for Liverpool. Which player doesn’t want to play for a club that gives them consistent challenges and are bringing home the trophy?
Lately, Liverpool has been unable to attract top players except the likes of Fernando Torres and Luis Suarez. Not only they are unable to attract top players, Liverpool fans are watching their top players leave the club for a bigger club.
In recent times, we have seen Fernando Torres being sold to Chelsea, Luis Suarez departed to Barcelona and Raheem Sterling publicly announced that he wants to leave Liverpool no matter how attractive Liverpool’s offer was.
Eventually he left for Man City. This is a cause for concern for the club and its fans.
As an investor, if we see the CFO, Head of Operations or other key management team leaving the company one after the other, we must be paying special attention and investigate what is happening to the company.
Having many key members leave the company is a stark red flag indicator that all is not well within the company.
3) Do Not Fall In Love With the Stock
Liverpool has declined from being a big club to one of smaller stature. The history of Liverpool indicates that they are a big club, but recent performance suggests otherwise.
The football club was once a darling to many neutral fans but now these fans may have gone to support other clubs. For ardent fans like us, we cannot abandon our club just because they are not performing well.
Fortunately, Liverpool Football Club is just a club I love and supported, not a stock that I invested in. Here’s why.
Falling in love with a stock is a dangerous thing that could happen to any investor. When an investor invests in a company, they invested because of the attractive valuation after they analysed the company.
However, a company’s fundamentals can change over time and investors must be able to detach themselves from the company and sell the stock if the initial reason for investing in the company is no longer valid.
Having an emotional attachment to the stock can only cloud an investor’s ability to make a wise decision. One of the traits a successful investor possesses is having no emotional attachment to the stock.
If I am an investor of Liverpool Football Club, I would have sold my shares ages ago.
I will continue to love and support the club, but not the stock.