Stay in the race: Here’s what investors can learn from cyclists in the Tour de France

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The pinnacle of bicycle racing, the Tour de France, gets under way this weekend and it is a gruelling competition: 23 days, 184 racers and 3,320 kilometres.

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Success requires incredible fitness, mental strength and teamwork. These three traits common to Tour winners are also often shared by many successful long-term investors. They leverage comparative advantages to selectively outperform the market, target being consistently good (but not always the best) in the short term and they mitigate risks to stay in the race.

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A good example of the first two traits in action is provided by Jonas Vingegaard, one of this year’s favourites and the winner of the 2022 and 2023 races. He won just two of the stages in 2022 and only one in 2023. Those stages all involved tough climbs — his forte. But in both years, he consistently finished well in each stage, even when he didn’t win. Being consistently good and selectively outperforming were part of his winning formula.

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Likewise, investors should pick their spots and not try to outperform everywhere.

For example, about 50 per cent of the funds we manage are invested in passive or factor strategies where we expect cost-effective market, or close to market, returns. The other 50 per cent is invested in market segments or strategies where we believe we have an advantage. Those advantages include our tolerance for illiquidity, longer investment time horizon and ability to partner with operational experts on a cost-effective basis.

Investors should also avoid “big bets.” Because surprises are all too common in the investment world, big bets are likely to lead to inconsistent results.

The Japanese equity market peaked in 1989, then dropped and took 34 years to recover. The Nasdaq peaked in 2000 and then took 15 years to once again reach its dot-com peak. Nortel Networks Corp. hit a high of $124.50 in July 2000, making it the largest company on the Toronto Stock Exchange at the time, representing more than a third of the entire index. By January 2009, it was insolvent.

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Big bets on any of these things would have led to big highs, big lows and then big regrets. Diversification helps prevent inconsistent results.

To win the Tour de France, racers also need to take precautions to avoid having to withdraw from the race. Risks abound. Crowded packs of racers travelling over cobblestones, narrow roads and mountains is a recipe for trouble. In 2024, 42 racers had to withdraw.

This is why Tour teams protect team leaders like Vingegaard with “domestiques” biking in front to allow them to stay out of the peloton and stay in the race.

Like racing, investment success is impossible if you don’t stay in the race. One of the keys to doing that is never having to sell investments in down markets. This locks in losses and prevents you from participating in the recovery.

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To stay in the race and avoid crystallizing temporary losses, investors should ensure they have adequate and reliable liquidity — in our case, mostly real and nominal bonds of different durations — to meet ongoing liquidity needs and avoid the need to sell higher-returning, but more volatile investments if they fall in value.

The Tour de France is a unique sporting event. Success is the product of many things, but much like investing, it’s as much about what you do as what you don’t do.

Bert Clark is chief executive of Investment Management Corp. of Ontario.

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