I am a big fan of comparing the formula for successful long distance running with long term investing. There are so many similarities that jump out at us, its hard to ignore.
The comparisons are particularly relevant in difficult times, times of uncertainty and market volatility when not just the rewards but the risks come into play too.
Here are three important lessons that long distance running teaches us in context to long term investing.
Mark a goal for your long-term investment. The goal may be 10 years away; in the meantime, governments will change, interest rates will move up and down, globally inflation may fall flat and so on. However, your goal doesn’t change.
1. Prepare beforehand to deal with the risks – Running long distance comes with risks. If you aren’t well prepared with your fitness around running muscles, your knee, glutes and core strength then you may find yourself succumbing to injuries sooner rather than later. Running continuously for an hour, two or three will wear out your muscles. Long term investing too comes with its own risks. Do your homework and be prepared.
Spend time in choosing good quality stocks or funds which you can hold for 5/7/10 years or longer. Consider it like a good warm up before a long run. More importantly understand what the risks are. Know your ability to withstand market volatility until it starts to become too much to bear. Prepare yourself to hold through uncertainty. Your long-term investment horizon can have periods of uncertainty, keep checking on your goal, pause to understand market cycles but then continue forward.
2. Mark your goal – Without the goal, external factors can become overpowering. You step out for a long run on a hot day, your aim is to complete 20 km. At 10 km, you realise that the humidity along with the heat is too high and it’s taking a toll. Should you quit? That figure of 20 km won’t let you. You will instead end up taking water breaks more frequently, maybe even lowering your pace or stopping occasionally to cool down.
The little things will help you reach your goal. Investing is no different. Mark a goal for your long-term investment. The goal may be 10 years away; in the meantime, governments will change, interest rates will move up and down, globally inflation may fall flat and so on. However, your goal doesn’t change. Instead of being bothered by the external factors what you need to do is check periodically that your investment still holds good for the expected return, if not switch the fund or stock but remain with the long-term asset.
3. Don’t hold back from committing to long term – Why run 10-20-30 kms in one go? It sounds like a rather strenuous activity to undertake. Strangely enough, no matter how good or bad a particular long run has been, the immediate and intermediate – mental, physical and emotional – affects are such that you want to go on even after a rather tiring couple of hours. The experience of making inflation plus returns in long term equity, of seeing your wealth grow, is very comparable. Both require patience and the discipline to remain committed to the long run – only then will the rewards be visible.
There is a lot more that can be compared, for now though in times of uncertainty make sure you have understood the risks and are prepared. Check your goal again and stay committed till the end to see the rewards.