This past weekend, I got to take part in BRAG (Bicycle Race Across GA). A friend and I chose to ride for 3 of the 7 days (from Columbus GA to Dublin GA). Some interesting lessons learned (and that apply to investments are):
- The power of groups (ie drafting). A lot of the time, my riding partner and I would be riding by ourselves through the GA countryside. I was amazed when groups of well-trained cyclists would blow by us in a herd formation. They were working together and drafting off one another so everyone wasn’t bearing the full force of the wind. Later I learned that riding this way can reduce your wind drag by up to 50%! In investments, I think this is akin to trusting market prices. I can go out alone and try to determine what stock is over-valued or under-valued; however, that takes a lot of effort and by trusting the group (ie market prices), an investor can save a lot of energy and focus on other areas of investing that DO add value!
- Some things are constant (bicycles and investments). I was delighted to be able to ride my dad’s road bike from the 1970s (b/c I’ve never owned my own road bike). This bike is basically an antique as it’s nearly 50 years old. Even so, it still functions amazingly well! At the race, there were hundreds of bikes that probably cost $5000+. But I was amazed at how well my older bike performed. In investments, sometimes a new investment trend is touted as being a “game changer.” And asset management companies may create new “investment vehicles” that are expensive and promise better performance. But, in my opinion, building a portfolio is like building a bicycle – not that much has changed in 50 years. Today, as it was 50 years ago, most of your return will be driven by your decision to own either stocks or bonds. And investors should broadly diversify to decrease risk and create more consistent returns.