Yes, you read the headline correctly. I am actually going to talk about running and investing in the same article.
What has running got to do with investing?
At first sight probably nothing. At least there is no obvious connection, but the first thing that comes to mind is that progress takes time – for both running and investing. Most people invest in the share market to increase their wealth over the long-term whilst saving for retirement and that certainly doesn’t happen overnight. My role as a financial analyst and client advisor is to educate investors to invest wisely and for the long-term. As a runner I need to allocate my time resources wisely, training consistently for maximal benefit in order to reach my future running goals. Similar skill sets including consistency and patience are required in order to succeed in both areas. But I’m getting ahead of myself now.
Volatility is normal – not only in the share market
I completed my first half marathon in 2003 at the tender age of 17 and just managed to finish the race in under two hours. What I liked about running back then was the fact that I improved very quickly and I noticed progress in just about every run; a stark contrast to the times when you work on something in life and progress is so slow that you barely notice it- which can be discouraging and may result in quitting.
Between 2003 and 2007 - just like the Dow Jones Industrial Average – my passion for running increased and peaked in 2007 before taking a bad hit just around 2008 and 2009. Funny enough this coincided with the Global Financial Crisis. The graph below visually shows the connection between my motivation/passion for running over the past 15 years.
Graph: My passion for running throughout my life. Looks a lot like the daily chart of the Dow Jones Industrial Average.
Looking back to my younger self, running felt repetitive and time consuming and a few injuries here and there didn’t help. I guess you could say that motivation is volatile and I definitely entered a bear market. I completely lost motivation and focused on other things.
However, if you are truly passionate about something, you will eventually return to doing what you love. If you don’t, then you weren’t passionate about it in the first place.
Bull market alert: my motivation returned
Let’s fast forward to today and we are looking at a long-lasting prosperous bull market. I am totally back into running, averaging over 250 kilometres per month and having recently completed my first marathon. This is basically how I look like:
A hip injury last year resulted in a temporary break but I guess even the strongest bull markets experience corrections. The most important lesson I learnt is to be patient in these times and make additional investments (recovery) before focusing on the return. If you are lucky, the next all-time high is just around the corner. I’ll leave it up to you to decide whether I am talking about running or investing.
What’s My Point?
Instead of wealth leading to increased happiness, the point I am trying to make is the opposite idea: Happiness leads to greater wealth.
Running makes me happy and I am not the only one who feels that way. The so called ‘runner’s high’ is backed up by empirical studies and it has a significant impact on the well-being of humans. It is a result of a neurobiological reward that occurs during and after exercise sessions. Running helped me to balance my work and personal life and having a healthy work-life balance helps you to become a balanced and happy person. When I exercise, I feel sharp, satisfied and mentally prepared for the day. When I talk to other people who are running they are simply bubbling with life. Passionate, goal-focused and adventurous are just some of the attributes that I notice.
“To be an investor you must be a believer in a better tomorrow”
Let’s look at two archetypal cases: happy (optimistic) vs unhappy (pessimistic) people.
It is a fact the stock market has appreciated over time; it has been one of the best performing asset classes in the world.
A pessimistic person may have less of an incentive to buy into stocks as negativity clouds sentiment and future expectations on return. In the most extreme scenario, the pessimistic person may always predict a so called ‘crash’ (severe and sudden price depreciation). While a crash is a very real and possible scenario, I have analysed over 100 years of trading activity and concluded that a ‘stock market crash’ is a very rare event. Historical data suggests that the chance for the Dow Jones Industrial Average to decline 20 per cent or more is between five and eight per cent depending on the timeframe.
Conversely an optimistic person may have more of an incentive to buy into stocks, as a positive stance to life and a general feeling of satisfaction should result in optimism, thus encourage investing. As Benjamin Franklin reminds us: “to be an investor you must be a believer in a better tomorrow.”
Don’t give up, be smart, be positive, focus on the long-term
In my case I believe running impacts my financial situation in two ways: Through the lessons that I have learnt and the positive impact on my well-being.
Here are a few lessons that running has taught me:
- Patience & resilience
- Focus on the long-term goal
- Never give up when you experience set backs
- Go out and run even if its rains
- If you feel tired, have a rest
I believe that every single lesson can be translated into other parts of life including share market investing. As a financial analyst I talk to investors on a daily basis and some of the most common mistakes that lead to poor investment choices include:
Investing is a long-term game and it is very important to be patient and to stick to a strategy, no matter what. These ‘skills’ can help you mitigate some of the risks associated with investing.
If you are balanced in life, you make smarter decisions
I am a firm believer that if you are balanced in life, you will be able to make smarter, more thoughtful decisions. So why shouldn’t it affect your investment decisions?
As a kid I ran around the block, as I grew older I did it to get in shape or to relieve stress. As I am working in the corporate world I do it to find piece and now that I have started it, it is hard to stop. Successful people continuously push forward and seek ways to improve. There is no better feeling than crossing the finish line or finishing a hard run that you thought you could never finish. I recently finished my first marathon and overcoming the difficulties reminded me that I can overcome any difficulty in life. When I am in peace with myself, I don’t focus as much on the everyday worries of daily life but rather think about the opportunities of the future.
Of course there is no connection whatsoever between my running and the general share market performance – but I have noticed that clients with a negative stance to life experience poor returns and find themselves ‘desperate’ to make a good trade, increasing their risk of making another poor choice. Of course, many problems in life are somewhat linked to financial problems, which may have been caused by the stock market in the first place, however you need to break the vicious circle somehow don’t you? It may be a good start to stop focusing on the problem and start doing what you love and be happy about it.
You want to get fit? Run consistently or find a sport you love. Be active every day. Five-minute abs are a pipe dream, just like a lottery ticket or buying the next ‘big thing’ on the stock exchange. Nothing wrong with being a short-term trader, but it may be wise to ‘have a rest’ if your strategy doesn’t work out. Walking away from the computer and focusing on something else helps you to re-set your mind. Same goes for running. These are just a few connections that I see.
The lessons I have learnt from running are simple but effective life lessons that can be translated into many other areas in life. Don’t give up, be smart, be positive, focus on the long-term and don’t outrun your joy.
For you, ‘running’ may be a synonym for something else that you are passionate about. That may be another sport or pastime, creative art or even friends and family. Find something that makes you happy and success will be inevitable.
Author: Simon Herrmann
Feb 21, 2017
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.