Guest Author - Guido Deboeck

Lance Armstrong was on Larry King the other night talking about the death of Mrs. Reeves and his own setback when he was first diagnosed with cancer. Lance as many of you know is the cyclist who won seven times the Tour de France, the biggest cycling event every year. He was struck with cancer, fought back, and achieved what no one has done before, winning the Tour seven times in a row. How did he do it? You may have read about him elsewhere but some highlights from his life story provide valuable lessons for investing.

This article shows how cycling, another sports event can teach lessons for investing. You already know how football tells you what investment strategy to adopt (see The market direction…)

Lance concentrated all his efforts during the year on winning the Tour. He did not participate in lots of other important cycling events. He learned every stage of the Tour beforehand. He planned every stage, employed good strategy and tactics. Let us concentrate on these few highlights to see what we can learn for investing.

Investing requires concentration of energy and focus. You already knew this when you read an earlier article. If you have a day job (who does not?) or you can spare only a few hours a week on investing, you should not assume that you can invest like a day trader or a professional manager who spend their entire day on following the markets. Hence, you need to invest differently, invest in ETFs, index-based mutual funds rather than stocks. Stay tune to this site and we will explain that in detail.

Training was an important element in Lance’s success; for investing it is not only important it is an essential element. Study of good books, regular reading of market trends is important. Even attending a investment workshop may be useful. Some book reviews can be found on this site. In the future I will write about what workshops/seminars are useful.

The more important lesson we like to focus on is strategy and tactics. Those used by Lance Armstrong to win the Tour teach in essence that different stages require different strategy and tactics. The different stages of the Tour can be grouped into stages that are flat versus stages with mountains. On stages that are flat (usally in the beginning or towards the end of the Tour) most participants save their energy and cycle with the big peleton. When markets are flat or in a trading range, it is likewise wise to not waist energy; sitting on the sidelines or staying in cash is perfectly OK.

The critical stages in the Tour are those with mountains. In the mountains it is easy to loose seconds or even minutes. Champions in those stages stay with the best mountain cyclists. Lesson from this is that when the markets are trending upwards, it is important to keep up with the best performing stocks and not to loose ground (return) by staying in average performing stocks.

Once the mountain peak is reached there is the descent. Smart cyclists do not take excessive risks on the downhill. Again an important lesson for investing is that once solid returns have been made you do not want those returns to evaporate when markets trend down. This is the time to be defensive, take profits and let the markets follow their natural path. No point in trying to outsmart the markets.

In sum, if you ride the markets like Lance Armstrong does the Tour, you are likely to come out as a winner, because there will be times to sit back (when markets are flat or in a trading range), times to be aggressive (when markets are trending sharply upwards) and times to be defensive (when markets are trending downwards). Lance managed to be successful seven years in a row after his setbacks. So can you or anyone else who applies the same discipline.


{Photo: Lance Armstrong winning a stage, Discovery Team}