What long-term investors can learn from a cycling world champion!

The Tour de France 2023 is on. It is popular in Denmark to watch and read about, and is generally regarded is the third greatest regular sporting event in the world, next to only the soccer world championship and the Olympics. A Dane, Jonas Vingegaard won last year and is the top-2 favorite again.

Some years ago another Dane, Mads Pedersen, won the world championship on the road, and Denmark went almost as crazy as in the summer 2022, when a quarter of a million people celebrated Vingegaard in Copenhagen on a sunny day.

I wrote about cycling and portfolio management back then. Since the article was quite popular, here it comes again after a slight edit:

As we approach the summer vacations, we can have some fun on LinkedIn as well, so it's a good time to meet Mads Pedersen, the cycling world champion from Denmark. Perhaps we can learn something as investors from champion cyclists. I will connect the dots.

Please have a look at the image above: This is how you look, when you beat 194 world-class athletes and reach the pinnacle of a global sport. Mads Pedersen, 23 years old, wins the 2019 World Championship after 265 kilometers in horrendous weather Sunday, September 29 in Yorkshire. Like cycling immortals Alfredo Binda, Fausto Coppi, Rik van Steenbergen, Eddy Merckx, Freddy Maertens, Bernard Hinault, Greg LeMond, Oscar Freire and Peter Sagan!

Didn't watch the race back then? Here comes a summery from YouTube:

Mads Pedersen won the race from the front, it was absolutely no coincidence, even if he was far from a favorite prior to the race. It may sound vulgar to Europeans, but what describes him best is an American word: Mads Pedersen is a "badass" on a bike.

I’ve spent the better part of the ten weeks since Mads Pedersen won trying to imagine what investment lessons can be learned from his experience. Could there be more similarities than meets the eye?

Without in any way comparing myself with a top professional cyclist, I was an active cyclist at the highest national level in the nineties while also graduating from the University. I have raced and trained with to world-class cyclists, and I know the people and the mentality in the sport, which sort of gives me a license to elaborate here. So please give me the benefit of doubt, a little kudo, and read on!?

For those of you not living here, Denmark went crazy in the days following Mads Pedersen victory. Grown men literally cried in front of televisions. There was a wall to wall coverage of every step from Pedersen, dozens of celebrations and even a big reception at the Copenhagen Townhall with a speech by Mette Frederiksen, the Prime Minister.

It finally happened: In my family, we have followed almost every annual championship race on television since Gerrie Knetemann beat Francesco Moser at Nürburgring in 1978 in a tough two-man sprint, also in pouring rain, very much like this year. A Danish rider, J?rgen Marcussen, sneaked away from the defeated elite group close to home to snatch the bronze medal. Each and every year, we have watched with high expectations for the proud members of our national team, who have always been true contenders, but until now have never come home with “The Rainbow Jersey”.??

Cycling is a sport with very large training volumes for both professionals and elite amateurs. Each pedal stroke requires only a little effort in terms of strength and is a fluent motion unlike the bumps and bruises associated with running. But a 265 kilometers ride requires some 35.000 full circles with the pedals in a heavy gear. Top male pros ride at least 30.000 kilometers a year. For much of the year, the pros have to live like monks, with only training, rest, food and sleep on their agenda. Which can be difficult to tolerate for their idle spouses.

World class active fund managers also have to dedicate themselves completely to their craft. Following years of education and apprenticeships, they fight very hard to be one of the select few with real responsibility for a large portfolio (and a very real compensation package). For the few ones I’ve worked for, it meant an obsessive, single minded focus on the markets and a mild detachment from friends, family and everything else meant to be important in life. Therefore, they rarely become true leaders in their organization, and the people in the rest of their organization are told to bear with them, because they bring home the bacon. Much like in cycling:

“In professional cycling you can do anything you want, no matter how crazy you are. You can even beat up the “director sportif” on a regular basis. But only if you ride fast enough, otherwise you have to put up and shut up,” as a celebrated Danish pro, Brian Holmd, told me on a training ride ride back then. He had some trouble adjusting to Denmark after ten years in crowded pelotons on small, windy and narrow roads in Belgium.

The world champion handles himself well in the public and the cycling community most of the time, but many cycling champions become selfish egocentrics, even egomaniacs, who can hardly keep up a conversation. At best, they speak about themselves with great enthusiasm, and they rarely listen.?In that respect, they are not suited to become role models.

Also, most world class cyclist do not win very often. They line up against 100-200 other riders every time. At “World Tour”-level, just three victories in a year can make you a star rider. For much of the year, they are not even truly competitive. Peak form is elusive, and can only be achieved and maintained for about 4 to 6 weeks, 2 or 3 times a year. The rest of the time, they?ride as donkeys. They have to be able to handle defeat and to keep trying, over and over again.

It’s not difficult to see the parallel to investing here. Even the best active managers will underperform in 3-year periods many times in their career. A batting average rate in stock selection at 6 out of 10 is very good, 7 out of 10 phenomenal. Investors also have to develop mental strategies to cope with default. For more about this subject, read about Emotional Finance here:

Cycling is a strange sport, as the riders have to collaborate we each other and compete tooth and nails at the same time. Imagine if they behaved like soccer players, broke the rules regularly to their own advantage and slaughtered a select participant twenty times in each race. A carnage would follow. Effectively, the cyclists have to manage the race with a 100 unwritten rules and etiquettes, and there is no real-time referee in the race. However, if a rider behaves badly, he will meet the other riders again and again. They have all kind of mental accounts and vested interests. Actually, pro cycling lends itself very well to advanced game theory with multiple repeat games and unstable parameters.

But the most important lesson for investors to learn from is the need to attack when the pain is at its very worst!

Say you are a long-term oriented portfolio manager, who believe the valuations of certain assets, asset classes, sectors or regions also come back to fair value. When do you have to invest more? When there is a massive pain! Bad short term numbers, a corporate scandal, macroeconomic turmoil, even social unrest. A cheap entry point then! If you wait until the order has been restored, the valuations will also be much better, but without you gaining from the journey. It’s just that it is counter intuitive for normal human beings to look for storm instead of calm weather.

The same goes for road racing. When the peloton is calm and the heart rates of the cyclist are moderate, an attack will never be successful, even if the attacker feels super strong and motivated. 50 riders will immediately respond. Real champions will attack again and again, when they have blood taste in their mouth and their regular breaths are replaced with irregular, strained hyperventilation. It goes against every sane instinct to attack, when your whole body is just screaming to stop! A group of riders slowing down in the front will be a relief for the lesser mortals, and an opportunity lost for real champions.

So, you think this is all a bit far-fetched? Maybe, but you’ve read this far! And I would like to mention, there is an interesting new private equity fund in Toronto, which has named itself Peloton Capital Management, so I’m not the only one finding similarities between cycling and finance! Enjoy the Tour de France!?