The Tour de France – Lessons for Investors
Building a great team to wear all those different colored jerseys
The Tour de France, according to its organizers, is watched by over 3.5 billion people in 190 countries and is one of the best-attended annual sporting events in the world, with over 12 million spectators cheering their favorite cyclists and teams from the side of the road.
This year’s 105th edition of the Tour saw 22 teams consisting of 176 riders from 30 countries, racing almost 2,100 miles in just 23 days.
After Geraint Thomas became the first Welshman to win this year’s Tour de France, he spent an enormous amount of time paying tribute to his teammates, who raced strong in some very challenging weeks. And since most would struggle to name any of Thomas’ teammates from Team Sky, as a financial advisor, it was easy to draw parallels to cycling and investing. Let’s explore.
The Team Concept
One member of a cycling team serves as its leader, and the others do everything they can to help him win (the Tour de France is all men).
For purposes of this comparison, consider you – an investor – to be the team leader.
In cycling, each team leader works with eight other riders, called "domestiques," who often don't have too much chance of winning the race themselves. Top teams typically have 20 or more cyclists on their rosters, from which team managers (your financial advisor) can choose the other supporting team members best suited for each of the 21 stages.
The Domestiques
The role of a domestique is essentially supportive, carrying and handing food and drink to the team leader, providing aid in the case of a mechanical problem and most importantly, riding in front of the team leader because it’s easier to pedal when there is someone out in front of you blocking the wind.
Teamwork in cycling is quite unique, because most individuals are asked to sacrifice for the good of the team leader. But you may have noticed that while the rider with the Yellow Jersey (race leader) gets all the attention, domestiques compete for other jerseys too.
The Green Jersey
The green jersey represents the race’s best sprinter. Consider these to be your sector funds.
They often sprint ahead in the performance column provided certain conditions are present, but they never stay out in front for too long.
And just as a good team manager knows what conditions are right for the sprinters – flat and with the wind – a good financial advisor knows when to allocate clients to sector funds.
The Polka Dot Jersey
The polka dot jersey designates the race’s finest climber. Consider these to be your “defensive” funds.
If you ask cyclists who they envy, they will probably say the other riders who can get up the hills the fastest, when conditions are most challenging. And remember, your climbers might not be the fastest on the flats, but they can still motor.
As an investor, it’s critical that you have mutual funds that can perform when the going gets tough – maybe when corporate earnings are contracting or during rising interest rate periods, for example. And your financial advisor can not only see the hills coming, but they can help you pick the best climber for your team.
The White Jersey
The white jersey designates the highest-ranked rider in the overall competition age 25 or younger. Consider these your small-cap funds.
Most investors are well-served by focusing on the large-cap sections of their portfolios, but tomorrow’s large-caps should not be ignored. And in the first half of 2018, one of the most notable trends has been the dominance of small-cap stocks over their large-cap counterparts.
In fact, the S&P Small Cap 600 Index has gained around 11% in 2018, outperforming the large cap S&P 500 by more than 5%. Further, the small-to-large-cap spread is the widest in eight years, since the first half of 2010.
The Team Manager – Your Financial Advisor
In building a cycling team, diversity is critical, not just in cycling skills but in different ages, skill sets, experiences, and physical talents. In investing, diversity is also critical – not in short-term performance but in asset class, market cap sizes, sector differences and geographical location (i.e., domestic vs. international).
The fact is that no matter how good a cyclist you might be, you simply could not win the Tour de France on your own. And no matter how great an investor you might think you are, you stand a better chance of reaching your goals with a financial advisor.
© 2018 RSW Publishing. All rights reserved. Distributed by Financial Media Exchange.
FMeX
