Forbes – Why Investing Is Like A Triathlon And How To Master It-


You have probably heard it said that building real wealth through investing is a marathon, not a sprint. Investors with the preparation, patience, perseverance and focus of a top marathon runner are almost certain to do well over the long term. I’d like to add a couple of dimensions to that analogy by suggesting that successful investing is more like a triathlon, which requires much more strategy and endurance.

Triathletes must have the same traits as marathon runners, but they must prepare for three different stages, including swimming, biking and running over a period of about 17 hours. The triathlete with the best combined time of all three stages wins the contest. A triathlete doesn’t need to win all three stages; they’re lucky if they manage to win one. It’s even possible for a triathlete not to win any of the stages and still come out the winner with the best overall time.

What A Triathlon Has To Do With Investing

So, what does that tell you about investing? Think of the different stages in a triathlon as different market cycles. Like triathletes, investment managers attempt to perform well in all market stages, but their particular strength may only be suited for one.

For example, managers who try to hug the S&P 500 might outperform others in a strong bull market, but they can be dragged down in bear markets. Those who take more defensive positions are likely to do well in down markets while doing poorly in bull markets. Aggressive active managers may do well in a sideways market but can get trampled when the market moves sharply in either direction.

Rarely does an investment manager come out on top in all market cycles. And managers who do take the top spot in a given quarter or year rarely repeat as winners. Yet investors still try to pick the winners based on their recent performance, even though the investment manager’s chances of repeating as winners are low.

Worse, investors hoping to beat the market will often “chase performance” by switching between managers according to their most recent performance, dumping an underperforming manager for an overperforming manager after one year or even one quarter. You might have better odds of picking the winners of each stage of a triathlon.

Trying To Chase Winners Can Be Costly

At the center of this costly investor behavior is the frequency with which investment performance is reported. Investment managers’ performance is reported every quarter and then annually. Investors who closely track the performance of their fund or investment manager are more likely to tweak their portfolios and sometimes completely break from their strategy if they don’t like what they see.

In reality, there’s no way to assess a strategy or fund based on its performance over one quarter. Even one year is too short a period to measure a manager’s performance. A reasonable approach to assessing investment performance is tracking results across several market cycles, including both a bull market cycle and a bear market cycle. That could be a span of five to 10 years.

Finding Investment Success By Sticking With A Long-Term Strategy

Investors seeking positive returns over the long term should ignore the intermittent winners and focus on a strategy that performs well in up markets while holding up well in down markets. That manager may never win the top spot in a quarter, a year or even a market cycle but will likely generate consistent returns over several market cycles. Investors who stay the course with such a strategy will likely outperform investors who try to chase performance by dodging in and out of funds.

Like running a marathon or a triathlon, investing to build wealth is a test of endurance, perseverance and patience. The winners are likely to be investors who find a sound strategy and stick with it for the long haul.