Those of you who know me, are aware of my love for the great outdoors, especially when it comes to roaming those magnificent mountains – be it on foot or on my mountain bike. It’s why the below article from Morningstar resonated with me, likening investing to sports. Being goal-oriented, I am more likely to show up to my training when I have committed to an event. Once I have that goal, the consistency and discipline required to achieve it become critical. If I do too much too quickly, injuries arise which result in massive set-backs, not only being forbidden to train but having to go through the expensive exercise of time and rehab which, quite frankly, is a frustrating waste of a precious resource. In the same vein, there is no short-cut to making money; consistent, marginal gains are of greater significance than risky leaps. Investing is boring; it’s a long-term game. It’s all too easy to be tempted by the elusive excitement of crypto. If it sounds too good to be true, it usually is. Time in the market, discipline and humility will carry you over the finish line.
Sport and investing have a lot in common – grasp opportunities, avoid mistakes and defend your gains. Yet, winning all starts with a plan.
The Olympics provides a fun lens to look at this commonality, as many athletes have followed a carefully crafted plan to the starting block. This plan is often four years in the making, guided by a coach who makes little adjustments depending on injuries and the competitive landscape. You’ll be hard pressed to find any athlete on the podium that just wings it.
This is very similar to successful investors, who have a plan, often have a coach (via a financial adviser) and make adjustments depending on the investment environment around them.
If you need to look for inspiration, look no further than Eliud Kipchoge, the marathon world record holder. He has been very honest about the challenges getting to the starting line in Tokyo, but has stuck to his foundations of excellence: “I still continue with my training, I have the same coach, same management, same thinking and that’s why I am here again.”
There is something beautiful in that framework. It is simple and it works. It starts with a goal. It has a plan to attain that goal. It has support mechanisms. And it enforces discipline to stick to the plan.
This has important lessons for investors too. The real secret to a great investor is to know the framework of their success—especially the people around them and the process they follow (which happens to be two key pillars we use to assess fund managers). This is far more telling than just admiring performance.
Naturally, everyone’s financial goals are slightly different, but let’s connect Kipchoge’s plan to that of a couple wanting to retire early:
- Continue the training. You need clarity of your goal/s to create a great plan, but you also need to follow that plan once it is decided. This is the unglamorous part of wealth accumulation. For example, an ambitious retirement goal might require you to salary sacrifice into your pension, but also top-up your outside investment vehicles while paying down debts. Far less exciting than talking about crypto millionaires at a BBQ, but it works.
- Same coach and management. External influences like a job loss or a market downturn might be speedbumps, requiring slight amendments to the plan. Having an experienced team to support you is a great asset.
- Same thinking. Investing, like sport, is all too often mental. It is remaining disciplined even when you aren’t seeing short-term results. It is being humble when things are going well. Behaviour matters. We spend a lot of time internally checking our own behaviour, making sure our eye is on the prize (empowering investor success).
Like an Olympic gold medallist, it’s entirely possible to win your race to your financial goals, even if you lose on occasion on the way there. Or said another way, you don’t need to break the world record on every run. If you can commit to the plan, minimise your errors and avoid large setbacks, you are likely to make incremental gains and rocket up your own leaderboard. This holds mathematically too, as bigger falls (or injuries) require increasingly bigger recoveries: a 10% fall requires a 11.1% rise to get back to even, a 20% fall requires a 25% rise, a 50% fall requires a 100% rise, and so on. Setbacks are a part of investing and sport, but they shouldn’t stop you participating.
The central point here—which holds in investing and sport—is to craft a plan that seeks marginal gains rather than risky leaps, a concept popularised in cycling. This is done by making hundreds of small improvements along the way. We do this at Morningstar, always seeking to improve our process and develop our people. This inherently requires humility, as we’re acknowledging we always have scope to improve, but it is the most reliable path to success. End investors can make small improvements too. For example, don’t try to suddenly save 50% of your wage tomorrow, save 5% and work upwards.
So, what’s your foundations of excellence? What’s your plan to reach that elusive goal?