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5 things investors can learn from the Tour de France

Tour de France just ended and investors can learn a surprising amount from the battle for the yellow leader jersey. Danske Bank’s senior analyst, Jacob Hvidberg Falkencrone, points out five key similarities between investing and cycle sport.

1. It’s not about winning the most stages, but being the best over the long run 
Tour de France consists of 21 stages, but in the history of the race no rider has won them all; in fact, when Chris Froome won the race in 2017 he did not win a single stage. In other words, winning the race is not about the small victories along the way, but about thinking long term, being patient and following your plan.

The same applies when you invest. While a good month or a good year is undeniably nice to have, that is not what counts for the long-term investor. You should therefore have a clear strategy that you stick to while striving to reach your long-term goals, rather than blindly pursuing short-term gains.

2. Winners have a broad range of abilities 

All the stages are different – there are flat, hilly, time-trial and mountain stages. No rider has the physical ability to master them all to perfection, but if you want to win you must be an all-rounder and not completely collapse on one of them.

The same applies to investors, and here the key concept is risk diversification. Your portfolio should not only perform well in a bull market, when equities rise – it should be able to weather a bit of everything. You can achieve this through a healthy mix of different asset classes that perform well in various investment environments, along with a sensible spread of securities within each asset class across sectors, countries and regions. This way your overall return will be hit less hard by downturns in individual companies or areas, and your portfolio will not risk a complete collapse.

3. Having a strong team around you is important

While cycling is an individual sport, no rider is capable of winning the Tour de France alone. Having a strong team of specialists – support riders, mechanics, trainers and doctors – at hand is vital. Likewise, being able to draw on the knowledge of experts and advisors makes good sense when investing, as you can ensure your portfolio is robust and always fits your temperament and financial situation.

Jacob Hvidberg Falkencrone

Senior analyst, Danske Bank

4. Risk management is important for avoiding unnecessary losses 
Success as a cyclist is vitally dependent on not suffering unnecessary time losses or bad crashes. And here risk management is of course a key factor. You should always be well placed in the field, not use up all your energy too quickly and not take excessive risks on the downhill stretches. 

The same principles apply to your investments. When equity markets are powering ahead, it is important to slow your portfolio down a little, so that the level of risk does not run wild relative to your risk profile. Should equities suddenly take up too much of your portfolio following large equity price rises, you should, all else being equal, sell off a little and buy up bonds, so that your level of risk again reflects your desired level – otherwise you can be hit disproportionately hard if markets suddenly turn.

5. It’s going to hurt at times
This year’s Tour de France route stretches over some 3,460 kilometres and includes no less than 30 mountains that have to be climbed. It’s inevitably going to hurt at times. However, if you have ambitions of winning, you will have to keep going, riding through the pain. 

Likewise with investing, there will be periods of price volatility and uncertainty when being an investor is not fun. But long-term investing requires endurance and focus, just like a cycle race. If you invested broadly in global equities 15 years ago, your portfolio would currently have risen by some 247% - yet despite that high level of return your portfolio would have been down 53% when the financial crisis was raging. Had you stopped when things looked darkest, you would have suffered a substantial loss. As a long-term investor you therefore have to accept that investing will hurt at times, but you must continue to trust in your strategy.

This content is not investment advice - you should always speak to an advisor about how a possible investment matches your investment profile before making an investment.