What A 238 Mile Sailboat Race Can Teach About Investing

By Jack M. Forehand — 

The team on Threebeans
The team on Threebeans

I have raced sailboats since I was 12 years old. It has always been a passion of mine. The combination of being on the water while doing something competitive at the same time has always been a big draw for me.

Over Labor Day weekend, I competed in the Stamford Vineyard Race on a friend’s boat Threebeans. The race includes many exhilarating moments, but also significant down time, and during those down periods, I couldn’t help but think about all the parallels between what it takes to do well in a race like that and what it takes to be a successful investor.

The Stamford Vineyard Race is a 238 mile race from Stamford, CT around the Buzzard’s Bay Light Tower and back. This year 111 boats competed, ranging in size from 30 feet to 70 feet. The race typically takes about 36 hours on the type of boat I race on, but the fastest boats can complete the course in less than half that (in fact, the course record was broken this year by the catamaran Fujin, who completed the course in just over 15 hours).

As we worked our way through the course this year, several principles that served us well also stood out to me in how they can also be applied to investing.

  1. Putting the Odds In Your Favor is Key, But Doesn’t Guarantee Success

A sailing distance race require a lot of planning. Not only do you have to prepare the boat and make sure you have all the required safety equipment, you also need a tactical plan for how you will navigate the race. The Vineyard Race starts in Long Island Sound, which is bordered by Long Island to the South and Connecticut to the North. The first major planning decision is whether to take the South route down to Long Island, the North route up to CT or to go down the middle. The decision requires analysis of a lot of variables, many of which are not predictable. First, the goal is to sail in as much wind as possible and for that wind to be blowing in the most favorable direction to produce the most boat speed. Second, secondary factors like the Tide also need to be considered.

When we combined all these factors together, we developed a plan to stay in the middle, but work our way up somewhat closer to the CT shore. The wind gusts seemed to be a little stronger up there and we also thought we could benefit from having a more favorable wind direction. Those both turned out to be true and we were first in our division as we exited Long Island Sound and eventually rounded the Buzzards Bay Tower to head back.

On the way back, however, our plan was challenged when the wind died and the two boats behind us split in completely opposite directions, with one going all the way in to the Long Island Shore and the other going up to Connecticut. We were faced with a situation where it was difficult to protect from one of the boats passing us since they went in completely opposite directions. We choose the Conservative route and stayed in the middle. More on how that turned out later.

Investing often confronts you with similar types of decisions. Having a plan that is based on history and puts the odds in your favor is key, but that plan will inevitably be tested. And sometimes those tests will be ones where the perfect outcome is not possible. During those times, sticking with what you know works in the long run is the key. And just like taking the Conservative route opened us up to the possibility of someone passing us, taking the Conservative route in investing means that some people will produce better returns than you. And that is ok. The goal isn’t to always be first. The goal is to balance risk and reward in such a way that you maximize the odds of a favorable outcome.

  1. Pain and Emotion are Terrible Partners for Successful Decision Making

One of the big tests of successful distance sailboat racing is lack of sleep. When you start a race in the afternoon, you have lots of energy, but as the race wears on, and you function on less and less sleep, your ability to make smart decisions is affected. That is the reason many distance races are won in the middle of the night, when some people lose their focus and make mistakes.

For us on Threebeans, our biggest test came on the second night of racing, when we were 60 miles or so from the finish. At that point everyone was tired, but the conditions quickly became more challenging when the wind filled in and it began to rain consistently. Our ability to continue to think clearly during those more challenging times was going to be the key to maintaining our position and getting a successful outcome.

Investing is very similar. The most stressful times, and how you react to them, are probably the biggest factor in whether you reach your long-term goals. When confronted with pain, most investors tend to panic and lose focus, and that always leads to bad decisions. Just like we had to take a step back during the most difficult part of the race and keep in mind both the journey we had completed so far and the ultimate goal, investors should do the same. When challenging times come, it is crucial to remember all that has gone into your investing journey so far and your ultimate goal, and then ask yourself whether the decisions you are making in the current high stress time is consistent with that. It is always a difficult thing to do in the moment, but it is essential to success.

  1. Patience is the Key – Following Your Progress Constantly is Counter Productive

The first two thirds of our race around Martha’s Vineyard was completed in record pace. When we re-entered Long Island Sound on our way back, we were on pace to finish around 4:00 PM the day after the start, which would have been by far the best time ever for the boat.

But then everything fell apart.

The wind, which had been strong, died to nothing and stayed there for 5 hours. During that time, I couldn’t help but look at the computer and watch our ETA. It kept falling and at one point it showed that it would take us two more days to finish instead of the 4-5 more hours it had previously been. The temptation during that period was to assume things would never change and the wind would never come back and to quit or make unnecessary changes. And some boats did that. But the key during that time was to keep things in context. We had just gone through a long period where there was plenty of wind and the forecast was for the wind to come back that night. For us to achieve the best finish, it was essential to keep that in mind and not assume that what is going on currently would persist forever.

Investing requires a similar skill set. A common mistake is getting too caught up in the current moment and that mistake is magnified by constantly checking your investment accounts. Both of those things can only hurt your pursuit of your long-term goals.

And this just doesn’t affect individuals. Professionals do the exact same thing. The market tends to revert back to averages over the long-term, but the variation from those averages in the short-term can be dramatic. Having patience during those times is key to executing a successful investment plan. And typically the more you check your account, the worse you perform. Fidelity did a study a few years ago to look at how activity in their accounts related to performance. Not surprisingly, the best performing accounts were the ones the account owners didn’t even know existed because those accounts made no changes and remained invested regardless of what happened in the market.

Crossing the Finish Line – Finally

So how did the race end? We ended up 2nd in our division of 5 boats and 10th out of 37 overall. So the outcome wasn’t nearly as good as it was the first half of the race, but it was still well above average. As Howard Marks often says, the best way to be at the top in the long-term isn’t to shoot for the first quartile, but instead to try to be consistently above average. I guess by that standard, our race was a great success.

Jack Forehand is Co-Founder and President at Validea Capital. He is also a partner at Validea.com and co-authored “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies”. Jack holds the Chartered Financial Analyst designation from the CFA Institute. Follow him on Twitter at @practicalquant.