In uncertain markets, experience and the right tools matter.
The crew matters most
I recently met with a couple of world-class sailors to discuss investing, and it struck me how similar investing is to sailing.
The first thing that came to me was that ‘people matter’.
Most Kiwis understand sailing or at least appreciate the importance of having the best sailors in your team. Skill de-risks. Financial markets like high-performance sailing, are inherently risky – but skill reduces that risk.
Put an average weekend sailor on a high-performance yacht, and someone is likely to get hurt. Put a skilled helmsman, a world class trimmer, bowman and strategist on board, and you give yourself a real chance of success.
Managing risk vs chasing speed
It is often said that the fastest boat will win. But behind every great boat is a team – sailors and engineers, working together to optimise performance. Both investing and sailing are incredibly competitive and well resourced. Syndicates have deep pockets and are prepared to spend a lot of money to garner an edge. Financial markets are also incredibly competitive and enormous resources are deployed to gain an advantage.
Ultimately for both, success comes down to managing the balance between risk and return.
The goal is simple, and the same: maximise performance while protecting what you have.
Risk is real. We see this in Sail GP, where crews push the limits to win. But when risks are misjudged, there are consequences, as we recently saw in Auckland, with serious injury to a member of the NZ crew.
The same applies to markets. Even highly skilled qualified managers can fail when risks, often in the form of leverage and concentration, are pushed too far.
Markets are unpredictable
Markets, like oceans, are unpredictable, with powerful forces bearing on them.
Races like Sydney to Hobart are notoriously dangerous. You need to know what you’re doing. The same applies to investing.
A simple but profound quote from the great investor Warren Buffett we often use when talking about investing is:
“Risk is not knowing what you are doing.”
On a stormy night, having an experienced crew on board greatly reduces the risk. It’s the same when risks hit markets, often from left field. The attack on Iran and the rise in energy prices has reignited inflationary pressures leading to higher interest rates and losses in bonds, which were supposed to provide ballast.
Don’t chase a dying breeze
At the same time, we are seeing rapid disruption from AI. Investors are grappling with what this means for businesses facing structural headwinds much like we saw with Nokia, Kodac, Seers and other ‘once strong’ businesses.
This reminds me of a sailing adage “Never chase a dying breeze”, shared with me by my great friend Murray Thom, himself a world champion sailor, and successful entrepreneur.
There are periods in markets where leadership changes and new technologies lead to new opportunities and a new paradigm. Some opportunities may still have value – but others may be yesterday’s breeze.
The right equipment matters
If you’re taking a yacht into the deep blue and want optimal performance in all conditions, you need the right equipment – not just to perform, but to protect. You may survive if you’re prepared to go with the wind, but if you want to stay on course, you need the best technology and equipment – you must be prepared. Markets can also be treacherous.
Many Institutional investors, fund managers and financial advisors are sailing on the high seas with very little protection. When volatility hits, they are often forced to simply ride it out.
We believe there are better ways.
You have to be prepared. You might go a bit slower when the fair breeze is blowing, but you will be ready for the storm. This isn’t about timing markets. It’s about building resilience into your portfolio from the outset.
Staying the course
The boat needs the right equipment to stay the course, and the right crew behind it. The best sailors and engineers spend as much time thinking about safety as they do speed. We look for the same approach in our managers, where capital protection is a key objective.
We don’t know what the next few months will bring. But we do know this: we are diversified, we are prepared and we have experienced managers focussed on protecting capital.
Our priority is ensuring portfolios are positioned to navigate whatever lies ahead – we know we have a skillful crew, with the right equipment at their disposal.
Because in both sailing and investing, the goal isn’t just to go fast, it’s to make sure you finish the journey intact.
Get in touch with Mark or Sam to discuss this article, or how we can help manage your portfolio through disruption.
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