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Winning Your Race

Terry Smith, founder and CIO of Fundsmith, gave a phenomenal presentation in 2019. One of my favorite parts is when he compares successful investing to the Tour De France.

Fund managers publish their quarterly letters around this time of year. Here is a good list by the way [HERE]. We investors like to act like we are reading them but in reality we are all just skipping to the performance tables to see how we compare against the best of the best.  

If you had a good quarter or year you can’t help but feel a bit of a chip on your shoulder, “Aha! I beat that, now where is my 2 and 20 pal?!” Or if you had a bad quarter or year, “What am I doing this for? I should just give all my money to that guy/gal.” 

Comparisons can be destructive because the pain of underperformance is far greater than the joy of outperformance. When you underperform you are comparing the worst of who you are against the best of everyone else. It’s like comparing how you look getting out of the bed in the morning to a model on a magazine cover. It’s just stupid and unproductive. 

In addition, when you underperform you feel the extra nudge to “do something”, to break away from your strategy and convictions – to chase short-term performance. You chase things instead of letting the market come back to you. 

Don’t compare yourself to others. You aren’t running their race. You are running your race.

I love this quote by Howard Marks: 

[blockquote]”Every investment approach, even if skillfully applied, will run into environments for which it is ill suited. By and hold. Growth stocks. Value stocks. Small stocks. Large stocks. Foreign. Domestic. And that means that even the best of investors will have periods of poor performance. Nobody performs great all the time. Buffett was considered over with. Now, even if you are correct in identifying a divergence of popular opinion from eventual reality, that varying perception that I mentioned, it can take a long time for the price to converge with value and it can require something that acts as the catalyst. Underpriced does not mean “Going up tomorrow.”. Overpriced does not mean “Going down tomorrow.”. And we, everybody has to know that. And in order to be able to stick with an approach or decision until it proves out, which can be a long time, investors have to be able to weather periods when the results are embarrassing. This can be very difficult.”[/blockquote]

Terry Smith, founder and CIO of Fundsmith, gave a phenomenal presentation a couple months ago. One of my favorite parts is when he compares successful investing to the Tour De France. This snippet plays at the 1:05:55 mark, and I’ve also transcribed it: 


The largest cycle tour in the world, most prestigious cycle tour is the Tour de France. Been run for over a 100 years. It’s never been won by somebody who won every stage. And it’s never going to be won by somebody who won every stage.

In fact, on a number of occasions it was won by riders who  never won a single stage. The first time they ever stood on the podium was when they were getting the race prize.

There are three different types of stages – There’s the time trial, which is where people are set off individually, wearing a skin tight suit and funny shaped hat. And they can’t get within 20 meters of each other to get any aerodynamic assistance or they’re disqualified. It’s a pure test of the ability of the rider on their own to supply a very high wattage in terms of power output for an hour unassisted.

In contrast in the Peloton stages where everybody rides along together, you can get about a 30% reduction in your effort by being in the middle of the Peloton and cutting the amount of work you have to do. I mistakenly when I did the London/Paris race for the first time after that couple of times, thought that meant it didn’t hurt as much. But it does they just go faster using that particular feature.

That stage is won because when you get within … Every team that’s got one carries a sprinter. And within 300 or 400 meters of the finish line, they let their sprinters go. It’s going to be won by a sprinter.

A sprinter cannot win a time trial. For a time trail think someone like Sir Bradley Wiggins. Six foot three, something like 68 kilos with 7% body fat. He’s got a shape like that. Basically that’s a time trial.

Whereas when you’re looking at Peloton stages with sprinters you’re talking about somebody who’s probably about nearly a foot shorter with a thigh circumference bigger than their waist. A powerhouse basically. And the mountain stages have a combination of this.

So the reason I’m telling you all this is this: I think when people are looking at investments seek a fund manager who can outperform in all market conditions and all reporting periods. There is no such human being. Good luck. If you find one let me know because I’m going to give him some money as well.

We’re trying to win the Tour de France for you. We are not trying to win every stage. Any rider who tried to win every stage would fail and fail to win the Tour as a result. You have to be good at something and get your colleagues and the team to carry you through the bits that you’re not to get the best long term result. 

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