《金融时报》|环法自行车赛的启示

The Tour de France has been in the news a lot this year, with a Brit winning it for the first time and Lance Armstrong being stripped of his titles for alleged doping.

You might ask what this has to do with investment. There’s at least one vital lesson for successful investment from the Tour. It will be run for the 100th time next year, yet has never been won by a rider who won every stage, and it never will.

That’s because cyclists, like investment products, are built for different ends. Imagine the peloton is like the mass of index-hugging funds. In each stage (quarter or year) it produces a winner, but the leadership continually changes. In the mountain stages, the climbers are those defensive funds that outperform in adverse market conditions, but don’t do so well in rampant bull markets. The sprinters are the High Frequency Traders built for speed. Gearing and derivatives are the investment equivalent of EPO and steroids- they can boost performance but at a cost, and added risk.

The Tour has three distinct stages. In the flat stages, the riders group together in the peloton, gaining advantage by slipstreaming those around them to save the effort of riding alone.

In the time trial stages, the riders are on bikes with tri-bars on which they place their arms so that their posture is more aerodynamic. They wear skinsuits because they cannot “slipstream” as in the peleton. They set off individually, so the result is a pure test of riding ability.

Then there are the lung-busting mountain stages in which the rider must ride up alpine passes and roads. Here, it’s about endurance.

There is no one rider with the physique to win all three types of stage. The way to win is to be excellent at one discipline, not bad at others, and to work with your team.

Searching for an investment strategy or fund manager who can outperform the market in all reporting periods and varying market conditions is as pointless as trying to find a rider who can win every stage of the Tour. But this is precisely what many investors do. We persist in examining our funds’ performance in every reporting period, as often as every quarter, and sometimes exiting when a manager underperforms.

An element of this is sensible – investment performance has to be measured over some time period, and some funds are persistent “dogs” in almost all market conditions.

But a quarter is too short a period to judge performance reasonably, and even a year is just the time it takes the earth to go round the sun. It is not a natural time period over which to measure the performance of any business or investment unless it is linked to the earth’s orbit. To assess an investment strategy or a fund you need to see its results across a full economic cycle with both bull and bear markets.

There is a lot of evidence to suggest that where investors are switching between funds and changing investment strategies, their timing is almost invariably wrong. Professional investors, in the form of trustees of endowments and pension funds, are just as guilty of this as retail investors. They often ditch managers after a poor streak only to find those managers recover their touch, while those they have adopted start to underperform. That would be like Team Sky parting with a cyclist who failed to win a mountain stage, only to see him triumph in a time trial.

Even worse are any strategies which rely upon a element of market timing. As the old saying goes, there are only two types of investor: those who can’t time the markets, and those who don’t know they can’t time the markets. Like the Tour, investment is a test of endurance, and the winner will be the investor who finds a good strategy or fund and sticks with it.

Terry Smith

Financial Times