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The Sailing School of Investments
10 Investment Lessons I Learned Sailboat Racing
I do not believe that being a great sailboat racer makes you a great investor or vice versa, but there are some broad concepts that can be learned on the water that cross-over between the two activities. However, unlike investing, sailboat races are typically executed in a matter of hours from start to finish and if you lose your shirt in one race you still get to reset and try again in the next one. Ie: you will never have to explain to someone that you just lost the house.
When I tell people that my hobby is racing sailboats, I am always aware of the images that it often conjures up. There definitely were privileges that were afforded by our middle-class upbringing, but The Shreveport Yacht Club had no “yachts” and was based on the shores of a small chocolate milk mud-puddle. There was probably a total of 30-people in the city that knew enough about sailboat racing to get a sailboat around a racecourse efficiently, and a far bigger contingent that wanted to convert the club into a ski-boat storage facility. Membership costs were somewhere between a library membership and a YMCA membership, and hotdogs and hamburgers were the cuisine. All of that said, the location was outstanding, the people were great, and this was a great environment to become a student of a lifelong hobby that has introduced me to countless places and people.
One-design sailboat racing and investing are simple activities in principle. In the first, the goal is to sail the shortest & fastest path around a course. In the second, the goal is to buy low, sell high and never lose the principal. Despite the simplicity of goals of these activities, countless lifetimes have been dedicated to them with only a select few being able to consistently perform at the highest levels. The following lessons are the 30,000 foot lessons that seem to apply to both activities and are in no way investment advice, just observations.
Lesson 1 – Get Comfortable in Not Knowing, The Games are Played with Incomplete Knowledge
There is a very small number of racing venues around the world where the guiding variables are fully understood all the time. Almost all racing venues have geographic features above and below the water that react differently to slight changes in wind and current direction, and in most venues a 55% accuracy in a weather prediction is considered winning. As a result, most participants must be comfortable with defining winning as doing better on an average over a series of events versus an absolute best outcome. With extreme variables in play, you will never win every race if you are playing equally matched competitors, but a record of winning more often than not is the name of the game.
Lesson 2 – A Fast Boat Can Make a Team Look Like a Genius
With extreme variables in play, competitors must isolate the aspects of the sport that are within their control to take advantage of. Stiff boats are polished, controlled systems are optimized and team maneuvers are practiced and mastered under all conditions. Your team’s ability to be a slightly faster nimbler boat than the team next to you, often translates into compounding opportunities that only those in the front can take advantage of. Years of practice and preparation to remove all drag tend to significantly increase a team’s “luck.”
Lesson 3 – Research and Models Pay
Knowledge is power. Your team’s knowledge of the most likely scenarios to play out on the racecourse and the models that are built around taking advantage of those scenarios, translate into better decision making. A large percentage of sailboat racing is spent in reaction to the conditions at play. If your team is looking for indications of trends they fully expect to see, they will always be able to change course and commit faster than those who are waiting to see if the change is real. Without knowledge, your team is gambling and hoping that boat-speed will prevail. Even worse, with bad knowledge your team will commit to the wrong trends and leverage your position on the course in the wrong direction.
Lesson 4 – Leverage is a Double Edge Sword
A five-degree shift over a mile course can be worth a 100-yard lead. Leverage is powerful, but the shifts in wind and current are never known with absolute confidence and the same loss can be experienced in the converse. Consistently winning team seldom take highly leverage positions. Instead, most of them “play the fleet” and take a mild position on the side of the fleet (market) that they expect to make gains on, without losing the farm if things go the other way.
Lesson 5 – The Right Information on the Wrong Timing Will Kill Your Results
Most one-design sailboat races take less than an hour to complete. If an expected 30-dregee right-hand wind-shift comes in just as you had predicted and leveraged your position for, your team could gain an unbeatable position over the fleet. If it comes in a minute after the leg is finished, and your team was all the way on one side of the course when the other side continued to pay, your team likely experienced the opposite and lost distance into an un-recoverable position. Expecting well researched shifts is smart, highly leveraging your position for them is risky. Those who do this regularly have grand stories to tell at the bar but stand on few podiums, in the same way that derivatives traders can be hung out on the wrong side of a trade and take down entire investment houses.
Lesson 6 – The Playing Board is Not Fixed, It Shifts
Growing up on a mud-puddle lake, I knew nothing about the world of current. Every inch that you made through the water towards your mark was an inch you had gained over the course. My counterparts on the coast were learning a different game. They were learning that even if they were in the right place at the right time for a favorable wind-shift, they could still move backwards if they were in an unfavorable current. They couldn’t just play the game with the shifting winds above, they had to also play the game with the moving waters below; similar to how all investments require the consideration of the investment itself as well as the movement of the currency it’s in. In extreme cases like river racing, I learned that you could even make huge gains with a quietly dispatched anchor if adverse currents were temporarily too strong. In a similar vein, investments like precious metals are not likely to make you rich, but they can prevent your purchasing power from being swept away in inflation.
Lesson 7 – Volatility Can Be Tricky
Louisiana summers were known for heat and high-pressure systems, which translated in to light and shifty winds. These conditions often warranted chasing wind that you could see in ripples on the water, but it was not uncommon for these little breaths of wind to shut down completely or reverse in direction. Lead changes were frequent and the boat that won was typically the boat with the highest focus and knowledge of the conditions. Unstable winds are hard on the nerves and often require a “detached-attachment” to the game. Sailboat racers don’t have the option of opting out of the extremely shifty conditions, but investors do.
Lesson 8 – Trained Instincts Have Real Value
There is often significant value in having been there before. Racing hundreds of races in local waters can make a team’s “local knowledge” deadly when competing against out-of-town competition. Not only will the team know what to expect, they will often know it on a level that their subconscious starts to make the decisions before they are even aware of it. Sometimes the move is to follow the best local when you are in foreign waters.
Lesson 9 – Taking Flyers Can Win Races but Fundamentals Win Championships
The limited success I have had over the years in sailboat racing has occasionally made me the person to ask questions to while also providing me access to the world champions in the sport. I have noticed that when I am being asked questions, almost no one in the crowd wants to hear, “All I did was execute on the basics that are being taught to your 8-year-old right now.” Everyone wants to hear about a magic trick for speed that was performed on the course or a magic sign that signaled a shift that they can use next time. With rare exception, there is no magic, which has been confirmed time after time when I am the one asking questions and looking for magic from the sailors above me. All greats seem to have fundamentals that they live by, versus “flyers” they bet on, to stack their consistent progress into world class results.
Lesson 10 – The Game is Stacked Towards Resources
Life is not fair. One of my favorite competitors is a 48-year-old X-East German Olympic hopeful that was trained by the government from the age of 8. He has such an incredible head-start on all of us that we are just ecstatic to occasionally place higher than him in a race. Others have brilliant resources at their disposal for the best gear, endless coaching, and professional crew. In the same way that industry knowledge and access to Bloomberg terminals may be hard to compete with when picking trends.
10 Ingredients of a World Champion Sailboat Racer (and Possibly a Respectable Investor)
An average finish of 4th place over a weeklong series of races typically wins a world championship. It feels outstanding to be the race leader in a massive fleet, but often the risks that are required to get there are indicative of habitual decisions that are harmful to results over a long period of time. Consistent gains made from regularly winning plays are the foundation for most regatta winners, and those winners typically shine in the following areas:
They are comfortable making decisions with incomplete knowledge
They make sure that their vehicles/team will never be their reason for losing
They know that there is no substitute for homework and practice
They know that leverage is to be handled carefully
They know that even though a trend is definitely coming, the timing can be the most valuable part
They know that gains aren’t measured in distance through water, they are measured in absolute distance to the mark (purchasing power)
They know that volatility and unsteady conditions can provide large opportunities for gains, but require careful attention to prevent losses
They know that a person who has been in that location a thousand times doing what they are doing is someone that should be paid attention to
They know that the fundamentals are typically the right decision, which is how they became “the fundamentals,” and
They know that to play the game at a very high-level, both time and resources must be invested
Note: Again, this is NOT investment advice, but observations to what I have noticed in three decades of playing around on boats. If you found anything in this article entertaining or educational, please share it with a friend or on a social media platform.
The Keyboard Chimp
As a curious engineer and novice researcher that studies a multitude of topics, I always welcome feedback at Chris@silvertrading.net and www.TheSophisticatedChimp.com. All of my writing is made possible by The Silver Trading Company www.SilverTrading.net , please allow them to help you with any of your precious metals needs domestically or abroad.