Thursday, June 25, 2015

Cycling vs. Investing



You might be thinking what these two things can possibly have in common. Let me explain.

Here in Vancouver, we're becoming obsessed with biking. There are over 400 kilometers of bike lanes in the area and half of all trips now consist of walking, biking, or transit.

I got sucked into this culture. It's been about three months that I've been proudly biking to work every day. However, I’m very ashamed to admit that for the first little while, I kept my bike fixed in high gear.

This city has a lot of hills. I loved the high gear as I went downhill or on a flat road. But going up-hill in this gear was painful. I used to always pedal standing up and was completely out of breath by the time I reached the top. Everyone else seemed to be riding the same hill seated with ease and so I wondered why I could be having such trouble.

After some research, I found the answer. Whenever I was going downhill or on flat road, I kept in my regular high gear. But when I was going uphill, I downshifted to a low gear. Magic. What a painless ride.

The same concept applies to investing. You can’t be holding the same fixed portfolio allocation in both boom times and in recessions. You need to occasionally shift gears between stocks and bonds depending on the prevailing environment. And just like with cycling, the method to switch gears should be very simple and systematic.

However, the common mantra in the financial industry is that you must hold a fixed allocation to stocks and bonds regardless of the market environment. Most advisers and fund managers love to hug the benchmark indices. Finance textbooks told them that the market is efficient and they should not try to beat it. In addition, they want to minimize their “career risk.” This is the risk of their customers abandoning them if the fund has a period of under-performing the benchmark.

Then every so often, a recession hits and these "experts" and their unaware clients get tortured through it. Just like I suffered biking uphill in fixed gear, but worse. Thankfully, it doesn't have to be this way.

6 comments:

  1. All class packages and memberships are valid on both cycling and yoga classes. We currently offer classes in both the morning and the evening Spin Class San Diego.

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  2. You do not need to have unique clothes for daily biking however it definitely assists. If you are travelling high and day-to-day efficiency biking clothes can keep you dry without you drowning in sweating rather, water resistant clothes is necessary. here

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  3. I'm not an investor or anything but I think riding a bike is quite similar to investing. You have to navigate the lows and highs and you must be vigilant for the sudden twists and bumps along the road. It can be a bumpy ride but as a cyclist, having the right equipment, clothing and basic knowledge of the activity is crucial. And I think practice makes perfect. That being said, I always make sure that I am properly geared for the climb so I read a lot of reviews about bike clothings, including cycling shorts. If you need to choose the best, read the reviews here first: http://myoutdoorslife.com/gear/biking/best-cycling-shorts.html

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  4. Thanks for sharing, nice post!

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