Sprints and marathons are completely different sports. Sprinting is about running as fast as you can to reach a short-term goal. In a marathon, you aim to reach a much longer distance, a long-term goal. It requires pacing yourself in such a way that you don’t exhaust all your energy mid-way. It requires focus and discipline. It is as much about mental fitness as it is about physical energy. Investing is hence often said to be like running a marathon. Investing involves committing significant time and energy. It involves striving for steady and consistent progress rather than trying for one big spurt in performance.
Eliud Kipchoge is a great runner. He has won numerous awards and is a record holder. This success is due to his skills, efforts, training and discipline. But the way his team manages the factors external to him plays an important role in helping him reach his personal best.
Here are some parallels in the world of investing.
Choosing an investment strategy is akin to choosing a venue
To reach our long-term investment goals, we need to design the right investment strategy or an investment plan. Vienna (where he set a marathon record) was chosen as a venue for Eliud based on: a) scientific research about the environment that helps runners perform the best; and b) studying which conditions specifically work best for Eliud. In the same way, the investment strategy needs to be chosen after studying what works over the longer term in investing and the rationale behind it. It is also important to customize it based on one’s financial goals and temperament.
Good investment thinkers are like champion pacemakers
During a marathon, the runner spends a lot of energy to maintain speed against wind resistance. An investor in the financial markets faces the same problem with market noise. A lot of time and energy is wasted trying to resist unwanted data and opinions. The use of pacemakers helped Eliud block the wind resistance. Similarly, a network of good investment thinkers helps an investor maintain focus and reach his/her financial goals according to the plan. The ideal pacemakers are investors who have a similar investment approach as yourself. Their action and discussions help you cut the noise and stay the course. Having colleagues or friends who help you take the right decisions and stand the ground is invaluable.
Leveraging technology is similar to wearing the right shoes:
Leveraging technology should be a constant endeavour. It doesn’t matter what investment style you pursue; technology can help you improve the way you collect, process and use data. Successful investing is about taking the right decisions. And like the shoes that provide support to the runner, decision support systems can reduce stress and channel the time and energy of the investor in the right direction. One can choose from simple screeners and macros to complex algorithms and artificial intelligence. However, selection of tools and technologies also depends on one’s investment style and goals.
Eliud broke through the two hours time barrier as a result of a combination of human skills and scientific analysis. In the world of investments, too, such a combination works well. It helps in achieving success and more importantly in making success repeatable. What we discussed above are external factors that influence investment decisions. Addressing them with the help of process, people and technology, doesn’t take the credit away from individual skills. Together, they complement the person’s skills and help the investor perform better.