The Portfolio Management Marathon

Type “investing is a marathon, not a sprint” into Google’s search bar, and you’ll get about 743,000 results.

As a Foolish-minded investor, chances are good that you’ve heard this phrase. Maybe you’ve even said it yourself. Slow and steady. Think long term.

I’ve certainly said it. I love training for and running marathons, and by my own estimates, I’ve run 3,500 miles in the past year alone.

And so it was that this past weekend, during a scheduled 23-mile weekly long run, I got to thinking about this oft-cited metaphor, and all the similarities between running and investing. I’d like to share a few with you today:

Consistency and patience are key. Many marathoners plan their training around a goal of being in peak shape for two key races per year, meaning that some marathoners can end up running well over 2,000 miles in training between each race. That’s a lot of miles! But if you truly want to be at your best for those two key races, you need to be consistent, and you need to be willing to put in the miles in order to maximize your chance of achieving your goal on race day. There is no alternative.

You must also be patient with your training. After every race you need to be willing to take the time to let your body recover and to work back up to your target weekly mileage while also making sure you’re running the correct paces. Push yourself too hard or too soon and you’ll peak prematurely, which is obviously suboptimal since the goal is to peak during your race, not in the middle of training.

Just like with running, investing is a competitive endeavor where everyone is constantly striving to get better. If you aren’t committed to putting in the time required in order to continuously improve, odds are that whatever investing advantage you may have will disappear over time.

And with respect to patience, Warren Buffett famously likes to quip how investing is like a better version of baseball—because you can sit with your bat on your shoulder waiting for a “fat pitch” without the risk of striking out. Great businesses are few and far between, and great businesses trading for an attractive price are even rarer. The only way to find these opportunities is by being patient. This is why the vast majority of our time is spent behind the scenes researching various ideas.

Incremental improvements lead to lasting gains. Just as Rome wasn’t built in a day, running a sub-2:20 marathon can’t be accomplished by training for just a few weeks. In order to get faster, your body needs time to get stronger, more efficient, and to be able to cope with the stress that accompanies running at a fast pace for an extended period of time.

These adaptions need time to occur; you greatly increase the odds of injury if you attempt to improve too quickly. Similarly, investing is also a game best served by striving from continuous improvement. Knowledge is compounding, so the more time you devote to learning, the better. Don’t wake up with the goal of becoming the best investor out there by the end of the day. Focus instead on trying to learn something valuable each and every day. You’ll be amazed at how much you improve over time.

Bad days are inevitable. Getting sick, sleeping too little, poor weather, getting injured, travel plans gone awry; no matter how much you train and plan in advance, the chance that every race in your career goes off without a hitch probably rounds to 0%.

Likewise, I also don’t know of a single investor who has a perfect record of investing in market-beating stocks—no such investor exists. Fortunately, having a poor race or investing in a stock that goes on to perform poorly doesn’t guarantee a poor career. What’s important is that you don’t get hung up on suboptimal outcomes. Instead, seek to learn from what went wrong. Mistakes can make for learning experiences that set you up for future success, if you let them.

Heed the benefits of a well-rounded approach. Ask any runner about marathon training and odds are they’ll tell you about the importance of LSD—long slow distance—running.

To be at your best on race day, you need to be constantly striving to improve your aerobic fitness, and one of the most effective ways at accomplishing this is to run as many easy-paced miles as your body can handle. Doing so helps build capillary density and increases the mitochondria in your cells, among other good things. This is why it’s typically the most common type of workout you’ll see in marathon training programs. However, you won’t be running your race at your “easy” pace, so it’s important to have a training program that incorporates speed work to ensure your body is able to sustain the faster race pace for the entire marathon. But too much speed work can actually be detrimental to performance because it runs the risk of over-stressing your body. The ideal training program will strike the appropriate balance between the two.

The connection to investing may not be as immediately apparent here, but I liken it to the investment process we’ve developed over the past decade. Investing in great companies is the LSD of investing. It’s the backbone of our process and will likely be the biggest contributor to our long-term returns. We then layer on top of that shorting, hedging, and options positions to create a more rounded approach to investing that both helps protect us from downturns in the market and attempt to maximize returns. And we believe it’s the way these different aspects of our approach work together that gives us the best chance at meeting our investing objectives.  

Fast starts are dangerous. One of my favorite sayings when it comes to racing is that “the marathon always wins,” meaning that if your goal is to race for time, whether it be for an overall place or simply a personal best, there’s no getting around the fact that it’s going to hurt. A lot. And although you can’t do anything to avoid this, there are steps you can take to put yourself in a position to overcome this hurdle. One key is to make sure you don’t go out too fast. In the last few weeks leading up to the race, most runners modify their training regimen in order to let their bodies repair the damage caused by stresses of training.

If done properly you’ll start the race with “fresh” legs and running at your goal marathon pace will feel like a breeze. In the heat of the moment, some marathoners interpret this feeling to mean that they should pick up their pace; however, more often than not this is a recipe for disaster. Doing so greatly increases your odds of hitting the dreaded “runner’s wall” later in the race. And it’s as bad as it sounds. It’s the point where your once powerful stride is reduced to a feeble shuffle because your body refuses to listen to your brain’s pleas to keep up the pace. Every muscle in your body is screaming at you to stop. Trust me, it’s not a very fun experience.

Marathons aren’t won in the first five miles, but they most certainly can be lost.

The same can also be said for investing. Frequently you’ll hear people say that “investing is a marathon, not a sprint” in order to drive home the idea that you shouldn’t fixate on short-term underperformance given how random the market can behave over shorter time frames. However, it’s perhaps just as important to remember that this randomness works both ways and you should never let short-term outperformance motivate you to completely abandon your process in hopes of repeating that outperformance.

Every investor should have an end goal in mind—be it saving for retirement, leaving money to family members, or buying a dream home. That is your end goal; your 26.2-mile finish line. It’s critical for you to both develop a plan for getting you across that finish line and stick to it. Get caught up chasing short-term gains and you may find yourself hitting the investing equivalent of the runner’s wall.

Running and investing are my two great passions. But I actually think there’s a lot to gain from completing this sort of exercise—so the next time you find yourself in the right state of mind, try to connect your career, your hobby, or anything else back to investing and how it might help you become a better investor. (If you come up with any connections you’d like to share with me, or if you just want to chat about running, feel free to send me an email, too.)

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—Jonathan (JP) Bennett, CFA

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