Winners are made in the mountains
And other lessons from the Tour de France
By Roger Lydiatt, CFA 18 March 2021 6 min read
Written by Roger Lydiatt , CFA and Ralph Jaglal, CFA on behalf of Private Investment Counsel, who believe in a holistic investment counselling approach to helping high net worth clients.
Most sports fans found their favourite sports and beloved teams sidelined, at least temporarily, through this pandemic. So for me watching the Tour De France, albeit two months later than normal, was a 2020 highlight especially as it ended up among the most exciting in the race’s 117-year history. As I watched and thought about the race, many lessons on business and investing emerged.
Winners are made in the mountains
The Tour de France is a 21-stage race occurring over 23 days that must be won strategically. The race is most famous for its brutal, energy-depleting, blood-pumping, muscle-tiring climbs up major mountain passes in the Alps and Pyrenees. When the road turns up, only the strongest remain.
The same is true in business. Although we are not yet through this pandemic, it is clear that some companies will emerge in better shape once COVID-19 passes, just as some companies were strengthened during the 2008 financial crisis. For example, after the financial crisis, the Royal Bank went on a buying spree to become a top ten global investment bank and Magna emerged with far greater market share as weaker competitors went out of business.
One day, we'll look back on businesses in industries that were decimated by COVID-19, and find companies that actually thrived during the pandemic. Chipotle will be one of them. After accepting the changes the pandemic brought, Chipotle turbocharged their take-out orders, opened new kitchens dedicated to online orders, hired 10,000 employees over the summer and watched their stock hit all-time highs in 2020. They also plan to open 200 more stores in 2021.
Doing hard things is not the same as doing risky things
As great as he was, three-time winner (1986, ‘89, and ‘90) and America’s first celebrated cyclist Greg Lemond was able to win the overall Tour de France in 1990 without winning a single stage of the 21 stage race. Surprisingly, this is not terribly uncommon. Over the years, the race has become more and more calculated and today’s winners tend to accumulate fewer stage victories, sometimes none at all, on their road to overall victory.
In a similar manner, Warren Buffett, considered the greatest investor of our time, described his investment style as ‘lethargy, bordering on sloth’ and his favourite holding period as ‘forever’. When it comes to investing, the hard part for most people is establishing a long-term plan and sticking to it. This means giving up the glory of a single stock stage win or a perfectly executed market timing attack. It means sticking to a plan knowing that eventually the market will crash (and then pick itself up again). Knowing all this is what makes it hard.
We can look to legendary investor Peter Lynch to remind us that “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
It’s hard to admit we don’t know with certainty what the markets will do, and it’s hard not to want to chase potential winners when even our advice-touting neighbours are getting rich through speculation and luck, but that’s often what it takes to secure a lifetime win rather than just a single stage.
We are who we are at our worst
For nearly two weeks, Primoz Roglic wore the 2020 Tour de France leader’s yellow jersey and had what seemed to be an unimpeachable grip on the race. Yet his dream was shattered during the penultimate stage 20, when he lost his legs on the stage he needed them the most. During the stage 20 individual time trial, the so-called “race of truth”, his 57-second advantage crumbled as his fellow countryman and ten-year junior, Tadej Pogacar, won the stage by 81 seconds.
Similarly, in investing, our overall success can be severely limited or completely ruined by our worst, whether it be a single security held in concentration that blows up or an ill-timed drastic investment decision to go all in or get all out.
At the risk of having two Warren Buffett quotes in one article (this one is actually his business partner Charlie Munger), “It’s remarkable how much long term advantage there is to gain by trying to be consistently not stupid, instead of trying to be brilliant.” We all have bad days but the less we have, especially when the stakes are high, the better off we’ll be.
Talent wins stages, but teamwork and intelligence wins the Tour de France
Team Sky (now called Ineos Grenadiers), the most dominant cycling team of the last decade, producing such Tour de France winners as four-time winner Chris Froome, Bradley Wiggins, Geraint Thomas and Egan Bernal, revolutionized the way the Tour de France was raced and had both the budget and brains to assemble the strongest squad of ‘super-domestiques’ riders that would sacrifice themselves for the cause. The work was hard but the rewards were even greater and everyone revelled in the glory, even those who never stepped onto the podium (as most don’t).
In business, teamwork divides the tasks and contributions, and that can multiply the likelihood of success. Good management encourages teamwork and empowers individuals to deliver their best, resulting in success at all levels, not just at the top. When leadership fosters real talent and teamwork, it creates the opportunity for individuals to contribute, feel empowered and be a star in their own right.
Seeing the opportunity is one thing, but seizing the opportunity is quite different.
The highlight of the 2019’s Tour de France for me was watching France’s favourite rider, Julian Alaphilippe, take the yellow jersey on stage 3 and wear it for another 13 days. As the race pace slowed in anticipation of a sharp climb to come, Alaphillipe attacked with a devastating burst of speed, gritted his teeth and rode solo to the finish. It was pure class, or as the French say ‘panache’, and no one dared follow.
When it comes to investing, our bond manager Canso displays this panache. At the start of 2020, they sat safely in the draft, holding nothing but the most secure and liquid bonds available. And not because they saw the crisis coming - they didn’t - but for the simple reason that they weren’t getting paid to take risk.
But when both the stock and bond market sank in February and March of 2020 in an over reaction to the pandemic, their large team of analysts went sifting through the rubble. They were highly selective in their approach and took positions only when they were exceptionally well compensated for risk and their risk analysis supported it. And the result? For most of our investors, the best performing asset class in 2020 was surprisingly corporate bonds, earning nearly 19%. If we hadn’t witnessed them doing the exact same thing in 2008, and to a lesser degree during the sovereign European debt crisis in 2011 and the oil crash of 2015, we wouldn’t have believed it either.
In keeping with our Tour De France metaphor, since our inception in 2002 ATB Wealth and our investors have endured many periods when the ‘road turned up’ and we know we’ll be faced with difficult mountain terrain again in the future. Our long-term advantage continues to be a healthy mix of consistently avoiding mistakes (disciplined portfolio strategies), seizing opportunities (acting on market opportunities) and blending teamwork with individual excellence. Whether future crises are large or small, we will build on our track record of successful outcomes because we understand that ‘winners are made in the mountains.’
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