Lessons to win your own race

Keith Speck, portfolio specialist, and Dan Kemp, global chief investment officer at Morningstar Investment Management Europe, share some practical insights.
By Morningstar |  09-08-21 | 

Sport and investing have a lot in common: grasp opportunities, avoid mistakes, defend your gains and ultimately win. But it 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 small adjustments depending on injuries and the competitive landscape. You will 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, who "loves his long runs, even on 'bad days'". 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 – the process they follow. This is far more telling than just admiring the latest performance or just looking at their track record.

Naturally, everyone's financial goals are slightly different, but let us connect Kipchoge's plan to that of an early retirement goal.

  • Continue the training.

You need clarity of goal/s to create a great plan, but investors 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 investors to max out the limit for their Public Provident Fund, increase contributions as far as their SIP (systematic investing plan) into equity funds go, and pay down debts aggressively. 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 and psychological. It is remaining disciplined even when investors are not 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 is 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 do not 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 should not stop you from 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.

This inherently requires humility, as it requires the acknowledgment that you always have scope to improve, but it is the most reliable path to success.

Go on. Build your foundation of excellence. Draw up a plan to reach that elusive goal.

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