BE CONFIDENT OR STEER CLEAR
Martin Pelletier shares investing lessons he learned downhill mountain biking.
Being a fairly conservative portfolio manager, it isn’t unusual for me to get strange looks when I share my passion for downhill mountain biking. The sport is not only exhilarating but also teaches some important lessons about managing risk and reward which are paramount for those in the business of overseeing the growth of people’s wealth.
With that in mind, here are five things that hurtling down a mountain on a bike can teach you about investing and risk taking.
LOOK WHERE YOU WANTTOGO
This is one of the golden rules when it comes to riding a mountain. It means not following others on a route that might be too steep or technical for your skill level — thereby putting yourself at risk of riding off the track or tumbling over your handlebars — but rather picking your own line, and sticking to it. The same can be said about investing: Others may have a greater tolerance for risk or more experience in the market and trying to replicate what they are doing in your own portfolio can lead you into dangerous terrain.
It’s equally important to look at where you want to go and not where the bike is. One of the biggest mistakes investors make is to steer their portfolios based on short-term moves in the market, whether it be return chasing or loss aversion. Instead, by remaining focused on the longterm goal you want to achieve, you increase the chance of keeping your portfolio on track.
KNOW WHEN (AND WHEN NOT) TO HIT THE BRAKES
I did my most recent riding at B.C.’s Silver Star Mountain resort, which has more than 600 berms on its downhill trails. Berms are artificial banked turns that allow a biker to descend a hill safely while having a bit of fun. However, knowing when to hit the brakes and to release them is critical to navigating berms without crashing.
Like these berms, markets can suddenly take a sharp turn so it’s also important to know when to hit the brakes and when to let them go. Combine this with maintaining proper balance and these turns can turn out to be opportunities to launch a portfolio forward.
START SMALL AND WORK YOUR WAY UP
Practice does make perfect, whether it be biking or managing your portfolio. This means taking it slow and starting with the easier runs first and then gaining the confidence to tackle the more challenging ones.
Having someone guide you through the process can really help whether it be teaching you about the basics of investing or walking you through the complexity of the industry. For example, it often helps starting with a simpler portfolio and adding more complex strategies over time.
‘SEND IT’ OR STEER CLEAR
One has to have both skill and confidence when it comes to riding features such as walls, gap jumps or table tops. Trouble happens when one isn’t fully committed, allowing panic to come into play.
The same can be said about riskier investments, as one needs to have both the ability to understand them and the willingness to take them on, something that can be measured annually in an investment policy statement. For those with smaller portfolios, a shorter time horizon or a low willingness to take on risk, there is nothing wrong with steering clear of those risky features. In fact, this is what your investment manager should be advising.
YOU OFTEN GET WHAT YOU PAY FOR
Having the necessary gear to match the terrain and the types of runs you will be descending is critical. Therefore a more expensive bike along with additional safety gear is required for those attempting the more challenging runs such as black diamonds.
The same can be said for those investors entering specialty markets such as hedge funds and private equity as those strategies will typically cost more than straightforward ones such as passive ETFs or long-only mutual funds.
To conclude, when it comes to both descending a mountain and investing be sure to know your limits, be safe and don’t be afraid to step outside the box and have a bit of fun.
Having someone guide you through the process can really help whether it be teaching you about the basics of investing or walking you through the complexity of the industry.
Financial Post
Martin Pelletier, CFA is a Portfolio Manager and OCIO at TriVest Wealth Counsel Ltd, a Calgarybased private client and institutional investment firm specializing in discretionary risk-managed portfolios as well as investment audit and oversight services.