I’ve always enjoyed running, particularly outdoors. This is especially true now that I have a family and a business to run; getting out into the beautiful Devon countryside is an opportunity to not only keep fit but to also relax and have time to think. Nowadays my running is limited to 5-6 miles but when I had more time to train I ran marathons. It struck me the other day that running a marathon is much like investing.
It’s Marathon, Not a Sprint
Primarily, investing is like running a marathon because the cliche “it’s a marathon, not a sprint” is so apt. If you invest money with an expectation of a quick return you may well be disappointed and fail to run the course, figuratively speaking.
In other words, timing your investment with a stock market crash, for which you have no control over the start, depth or duration, may well cause you to cut your losses and run, which, second to investing when you couldn’t afford to, is one of the worse things you can do. Until you cash out any losses are temporary and to date, all market crashes have been temporary: since 1925 there have only been 9 bear markets averaging only 21 months in duration. Whereas, over the same time period the bull markets have averaged 7.6 years in length.
History shows that the global stock markets offer the greatest source of long-term returns than any other asset class, particularly when dividend income is re-invested in new shares, and as long as you believe in the ability of companies and economies to grow you should always believe stock markets will recover from crashes. The very moment you cash in your losses become permanent and your willingness to invest again will diminish greatly.
Running Your Own Race
Unless you are an elite athlete with the expectation of winning a marathon you run it with your own personal goals in mind: simply just to get around or to achieve a particular time. It’s you against the course and the clock.
When investing, the novice or unwise investor compares himself to others regardless of their personal situation or priorities: they see an arbitrary benchmark like the FTSE 100 or worse still, their brother-in-law, colleague or some guy in the pub getting a particular return and they want to the same too (Bitcoin being the latest trend du jour).
When investing, the only return that matters is the one you need to achieve your financial goals as they relate to your lifetime priorities. What anyone else gets is irrelevant. What is more, as with the gambler who only talks of the wins and not the losses, the speculative (rookie) investor will only tell you about the gains and not the losses, despite the losses, in all likelihood, outweighing the gains in severity and frequency.
Patience and Discipline
Finally, both investing and marathon running takes patience and discipline. With a marathon, you need to take time to slowly build up the training, eat well and keep going when your motivation wanes.
With investing you need to not only accept the crashes but also the initial years when it feels like your money isn’t really growing until the time when compound interest kicks in and you reap the rewards from the years of patience and discipline.
Unlike marathon running, with investing you don’t get a medal at the end but you can get to the point of financial independence which will feel even sweeter.
If you want to talk about how you can invest for the long-term to meet your unique lifetime priorities, get in touch.