Competition and the Law of Diminishing Returns

competition on the court

I come from a family of eleven children. I had six brothers and four sisters. So from very early on in my life competition was a means of survival.

  • Building legos: who has the biggest tower?
  • Picking blackberries, who filled their bucket up the fullest?

Of course we were competitive with sports. But even in “normal” areas of life, us brother still found a way to compete. I can’t remember how many times our mom would ask “Does EVERYTHING have to be a competition??”

As I grew older, this competition served me well.

I worked hard to earn a starting position on my high school basketball team. In my first job I quickly earned a senior accountant position by working hard and learning everything I could. When I joined a hedge fund company, I started as an analyst. But within a year, I worked my way up to managing a portion of the company’s capital.

Competition can be a great motivator and can help you accomplish many things.

The Law of Diminishing Returns

Although competition has its benefits, it can also cause significant problems.

This week I was playing basketball with some friends and my team was down a couple points. We were close to  the end of the game when my opponent briefly picked up his dribble and then dribbled again.

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I called out the penalty and this player went nuts! He couldn’t believe I made the call and insisted that I was wrong. Yet I saw clearly that he had rested the ball on his hip.

I felt right in my call so I pressed the issue. My competitive juices kicked in and I aggressively and loudly argued my position.

This was just a pick-up game between friends. Yet I was acting as if we were playing a championship tournament.

Whether I was right or not, my competitive spirit didn’t serve me well in that instance. It put me in a place where instead of being a friendly ball player, I was an argumentative opponent.

I don’t like seeing that side of myself.

Competition and Investing

Competition can help us or hurt us in markets too.

Healthy competition can drive us to perform intense research, or to try new strategies that pay off well.

But taken too far, competition can cause us to make poor decisions, or refuse to give up on a losing position.

When we just know that we’re right about a stock, we may stick with a position when we should be cutting our losses and moving on. Or when we can take too much risk to try to hit a goal — without being careful to protect our capital.

The basketball game this week was a good reminder of how competition has it’s place but can also become a liability if taken too far.

Here’s something to think about this weekend… how has competition helped you in your career? In your life decisions? In your relationships?

How has competition hurt you in these areas of your life?

What will you do next week to balance competition and limit it to a healthy role in your life?

I know I’ll be working harder to keep pickup basketball games friendly :).

Have a great weekend!

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