Skating to investing success
By Mike Reilly 2018/03/22
The 2018 Winter Olympics seem to have flown by, just like always. Anyone who knows me understands what a junkie I am for all the events. I’ll watch just about anything that involves people sliding over snow or ice. However, there are two skating events that stand out in my mind: long- and short-track speed skating.
One of my favourite competitions is the long-track speed skating. The power and grace displayed by the athletes as they push long strides around the oval are so impressive. It’s seems a contradiction that the skaters who put in the most effort appear to be skating the easiest. In most cases, the expected winner does triumph to the delight of the fans. However, many observers consider it boring as pair after pair race against the clock with only the occasional fall or Cinderella upset.
On the other hand, short-track speed skating is unpredictable. Skaters careen around the tiny oval in packs of five or more. Collisions are common and it often seems like the winner just happens to be the only person still on their skates when they cross the finish line. The apparent randomness of winning and losing makes this a difficult event to enjoy, so I usually don’t watch.
Of course, these opinions are based solely on my own inexperience with either sport and do not suggest that one is any more difficult than the other, nor is one sport’s athlete superior to the other. (So don’t bother writing me nasty emails if you’re a fan or competitor in short-track.)
The two events stand as a metaphor for financial planning.
Long-track speed skating is like a long-term investment strategy. With skating, years of low intensity mileage compounds into repeatable performances at competitions, ultimately leading to international championships. Of course, there will be bad days along the way (illness, injury, fatigue etc.) but over periods of 5, 10, 20 or more years, the trend towards increased speeds and lower times are predictable. In many ways, the Olympic gold medal is won long before the athlete ever arrives at the games.
This same strategy describes an investor who develops a long-term investment plan understanding that there will be both ups and downs in the marketplace. They develop a diversified portfolio (often with an advisor), implement some risk mitigation against income loss due to illness or injury and invest frequently without concern for periodic gains or losses. Although nothing is guaranteed, this approach is more likely to result in an investor reaching (or coming close to) her financial goals.
Short-track skating is like an investor looking to get rich quickly. While there is certainly plenty of training prior to the event (see above disclaimer that this is not a criticism of the athletes themselves), winning appears to have little to do with traditional racing fundamentals. Each competitor is positioning themselves to get the finish line first by looking for “short cuts” – inside lines and corners. Rather than go out in front, most sit within the pack, waiting and watching for that one opportunity within a lap of the finish line to strike. Rarely does a race finish with all the competitors who started, so avoiding a big crash is a priority.
If you like long-track speed skating, even if it’s boring, then you will probably benefit from considering a low intensity, long-term investment strategy.