Making every post a winner

There is an expression in sports races: "Making every post a winner".  By trying to race to every post along the way, the racer is going as fast as they can, and it is only a matter of time before they tire, because you can't go 100% all the way - unless you are very close to the end of the race already.

In races like the Tour De France, you generally never see the cyclists going 100%.  For the most part, they wait, and wait, and wait, until the "key moment", and only at that time do you see them going flat out, and the race is won and/or lost in those very few key moments.

Similarly, in investing, the best strategy is not to make every "day" a winner, or every "week", or even every "month", "quarter" or "year".


Let's say for a second that it was the best strategy to make every day a winner.  In this scenario, the investor would try and make as much money as possible every day of the week, and it logically follows - given that this is the best strategy - that after 5 days this would lead to the best possible weekly result, and that after 90 days it would lead to the best quarterly result, and that after 10 years it would lead to the best possible 10 year result.

The problem with this should be obvious.  By only looking one day ahead - let's say the day before a crash that you know is coming, you cannot try and avoid the crash because you are trying to maximise your returns today.  The net result over that two day period for the investor, however, would be far better off if the losses of the second day were avoided, regardless of the result of the first day.

Clearly, a focus on the best daily return - every day for 10 years - would not lead to an optimum result over a 10 year period, and that, instead, an investment strategy that focused on maximising the returns over a 10 year period would be a better strategy.

Timeframes matter.  So why anyone focuses on the short term, or even medium term, is beyond me.

Having briefly summarised my investment strategy before as:

• Identify quality companies.
• If/when they become cheap, buy them.
• Hold cash in the mean time.

I am expecting, rightly or wrongly, my yearly annual returns to approximately be:

Years 1-3	6% pa
Years 3-4	100% pa
Years 4-10	20% pa

which works out to an annual compounding return of 28%.

The reason for the 6% over the next 1 to 3 years, is that that is the interest rate that I'm currently getting on my cash.  I suspect that some time over the next 3 years, there will be a significant price correction and panic in the market, giving me an opportunity to buy some quality companies at very cheap prices.  A subsequent recovery from the panic will see prices somewhat restore to normal, after which time the my returns will largely be determined by the returns of the companies that I have invested in.

Now, you might think that I'm full of shit - perhaps even delusional.  That's fine.  The point is that I believe that if I tried to maximise my returns every year, I don't think that I'd be able to achieve a 28% per annum return, although I could probably beat the expected 6% return this year.

To conclude with another sporting anecdote - I recently went go-karting.  The winner of the three race series turned out to be an ex go-kart racer.  Clearly, he was better than me, so I asked him for some advice.  He said "You have to go slow to go fast", meaning that you have to slow down and enter the corners correctly, to be able to get the best acceleration out of the corners.

Perhaps the real question should be - is there a corner coming?  Clearly, I think so, hence why my foot is not on the accelerator...