Investment Returns and the Plateau de Beille
July 20, 2015
About this time every year my attention gets split between two of my favorite passions: cycling and finance. Finance is always interesting (sometimes too much so) while cycling is much more seasonal. Interest in cycling is high right now because the Tour de France, arguably the greatest event in all of professional cycling, is currently under way. The Tour de France is a heroic event that has been taking place every summer since 1903 with only a couple of exceptions due to military conflict in the region. As an avid cyclist, I’ve been watching the Tour for many years. Like Warren Buffet’s annual letter to shareholders, the Tour is something I look forward to with great anticipation and don’t want to miss. Over the years I’ve come to realize the Tour offers some compelling insights for investors as well as cyclists.
Before we get to the insights for investors, let’s start with a little background on the Tour. The race takes place every July. It lasts over three weeks and covers more than 2,200 miles in 21 timed stages. 22 teams compete, each with nine riders, for a total of 198 cyclists at the start of the Tour. The Tour is incredibly difficult. It is not uncommon for 10% to 20% of the cyclists to abandon the Tour at some point during the race. It’s a grueling event often in inclement weather over varied terrain from flat and windy sunflower fields to rugged mountain passes in the Alps and Pyrenees. Speeds on mountain descents can exceed 65 miles an hour. With so many cyclists racing so closely together, crashes are a constant danger. The cyclist’s uniform is called a kit and is made out of material similar to a swimsuit. Their helmets are made out of about 8 ounces of Styrofoam. It doesn’t sound like much crash protection until you consider the old days when they wore no helmet at all.
By now you might be wondering what all this has to do with finance and investing. Actually quite a lot when we dig beneath the surface.
Like riding a successful Tour, managing a successful investment portfolio is a long-term strategic endeavor. In the Tour, the top contenders know it is a grueling three weeks to the finish so they have to manage their resources wisely. The sprinters may dominate the flat stages, but the ultimate outcome is most often decided in the mountains. The mountains are by far the most difficult. They present greater risks but also greater opportunity. The mountains expose strength as well as weakness. The mountains are where the winners tend to emerge.
The same is often true with investing. Like sprinters on a flat stage, some investments may race ahead for a period of time. Technology stocks in the late 90’s or mortgage backed securities in the early 2000’s would be good examples. But when the road turns up and the going gets most difficult, those investments are often the first to fall behind and are rarely in contention for the podium.
Just like in cycling, financial stress creates opportunity, exposes weakness, and provides an environment for winning strategies to shine. In finance as in cycling, winning strategies do not occur by accident. They are the result of familiar components: hard work and perseverance, many years of experience, a strong supporting team who can execute strategy and tactics, a high level of professional skill, and perhaps a modicum of luck.
If you get an opportunity this week I hope you’ll take the chance to tune in to the Tour. It’s a wonderful pageant, steeped in more than a hundred years of tradition. The television coverage offers stunning images of the French countryside. While you enjoy the scenery, we hope you’ll rest confident in the knowledge that you have a competent team of financial professionals following time-tested strategies to manage your investments for the long haul.
As always, we welcome your questions and comments, and we remain grateful for the trust you have placed in us.
Mike Masters
