Investing & The America's Cup
Australia II (right) pulls away from Liberty (left). Source: Australian Sailing Hall of Fame.
Nothing makes you look as smart as a fast boat.
This quote was from the excellent Netflix documentary Untold: The Race of the Century. The documentary was about the fascinating storylines behind the 1983 America’s Cup and the unique history of the competition.
The quote is quite profound as there is an awful lot that can go wrong in sailing! A fast boat can certainly compensate for shortcomings in navigation, tactics or a crew that is not in the peak mental and physical condition necessary to be successful in yacht racing.
For the unaware, the America’s Cup is a “best of 7” yacht race and is the oldest international sporting competition in the world. The competition is held when a challenge is issued by a rival yacht club. Historically this has been roughly every 3-5 years.
Hosted by the defending champions, the New York Yacht Club had taken on all challengers since defeating the British in 1851. This 132-year reign represents the longest winning streak in any sport. Talk about a dynasty!
All good things must come to an end though. In 1983 a team of scrappy Aussies and their innovative boat, Australia II, sailed back from a 3-1 deficit and into history.
How Does This Relate to Investing?
Over the past few years there’s been no shortage of fast boats. There have also been many strong tailwinds for markets such as stimulus cheques (CERB) and support for businesses impacted by the pandemic.
The table below shows 2020 and 2021 had some very fast boats! However, success is a fickle thing as seen year-to-date (YTD).
Source: NBI CIO Office. Data as of October 31, 2022.
High performance is exciting but the more vital component to success is discipline. Even with the fastest boat, the Aussie sailors continued to work out, eat their vegetables and train their minds to prepare for races. While less glamorous, these elements were no less critical to their success.
In order to finish first, you must first finish.
– Sir Stirling Moss
There’s a lot in common between racing and investing. To meet your financial goals sticking to a process when times are good and even more importantly when times are bad is significantly more important than having the maximum return in any given year. There’s no trophy for the fastest lap!
Consider the below.
The dark blue line represents the world’s greatest market timer. They invest $1,000 every year at the annual low ensuring they get the maximum return for every year. On the other hand, the red line who is the world’s worst market timer who invests right at the peak of the market every year. The middle grey line was an investor on autopilot. They just put money to work each month at the start of the month.
Source: NBI CIO Office. Data via Refinitiv. *Annualized money-weighted rate of return.
Despite the extreme differences in luck, all 3 investors did quite well. Long-term average returns for the TSX are around 7-10% for context.
The investor who went on autopilot with a systematic plan only had to set the plan up and leave it alone. That’s it. That was their “edge”.
You can read more about the benefits of this strategy here: The Power of Pre-Authorized Contributions (PACs) & Dollar Cost Averaging (DCA).
Even the unluckiest investor, who diligently put $1,000 to work each year, still had success investing. This highlights the most important things are getting started and staying invested.
Since the Aussie’s upset victory in 1983 the America’s Cup has changed hands 5 times. In racing and investing, complacency is never a winning strategy. Continuing to put time and energy into managing your finances is key.
This DOES NOT mean trading frequently or checking your accounts daily.
It DOES mean ensuring you have a saving strategy and investment plan that is flexible, can evolve and is one you’ll stick to. The winds of life are constantly changing!
It also means aligning decisions with your time horizon. If you’re saving to retire in 30 years, you have 360 months/1,565 weeks/10,957 days to go (Sorry to break it to you!). Step back and truly appreciate the timeline you’re working on before making any significant changes.
The last 2.5 years have shown that the world is full of uncertainty. There are a lot of big unknown unknowns. This highlights that your energy and focus are far better spent optimizing things you can control (such as savings rate).
Do check in at least once a year to make sure your plan is working (dollar amounts, frequency, use of registered vs non-registered accounts, etc). Don’t hesitate to make changes if that means you'll stick to your plan.
As always, if you have any questions or would like a second set of eyes to review feel free to get in touch with our team. We're more than happy to discuss setting up a systematic plan or answering any questions on the best way to develop a plan.