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Investing and bike riding share similar cycles

Cycling, whether for commuting, recreation or fitness, has never been more popular. It crosses the gender divide and can be enjoyed across the age spectrum, from the young on training wheels to MAMILs (middle-aged males in lycra) astride carbon-fibre rigs costing more than some compact cars.

Road cycling has garnered an enthusiastic following amongst the corporate set, particularly within the investment community. Some say it’s the new golf. Attending the recent Tour Down Under professional cycling event in Adelaide I was struck by the number of bankers, brokers, fund managers and advisors who have embraced road cycling culture. This confluence of cycling and investing started me thinking about important parallels between the two.

1. Keep pedalling in tough conditions

Cycling enthusiasts, like investors, must deal with variability. Every seasoned rider knows that conditions at departure will rarely hold for an entire ride. Many a time I have been out in ideal conditions, rolling with a gentle tail breeze, only for the weather to shift unexpectedly. Confronted by brooding skies and a block headwind, what minutes earlier seemed effortless suddenly becomes difficult.

When faced with headwinds seasoned cyclists hunker down and push steadily on, if not quite as rapidly. They accept cycling’s intrinsic variability and are prepared to persevere when conditions deteriorate. More often than not, things change and the pedalling gets easier again. There’s a lesson there for investors.

2. The difference between risk and uncertainty

Cyclists often have their favourite training rides mapped out: the route, the departure time and the expected ride duration. Route information is commonly shared amongst riders, each adding to the collective knowledge of traffic conditions, known road hazards and low or peak vehicular activity. This is risk management, with the historical frequency of negative events informing judgements about a ride’s riskiness.

Risk, however, is not uncertainty. Risk is measurable whilst uncertainty isn’t. Risk is akin to analysing historic data for a particular climb and adjusting your route based on cycling accident statistics. Uncertainty is descending such a climb and diving into a blind hairpin bend only to discover sand across your cornering line. Time spent rationally analysing route information now counts for naught. The response is instead instinctive, relying on ‘gut feel’ rather than analysis. Feather the brakes, pick your line and with luck on your side you may ride home unscathed. Panic, grab at the anchors and a world of pain awaits.

Prior to the global financial crisis many investors thought they were prudently managing risk, only to be blindsided by ‘unknown unknowns’. This schism was neatly summarised in a 2010 Reserve Bank speech: “One of the contributing factors to this mis-assessment was an over-reliance on a model-based approach to risk management, which focussed too much on measurable risk without taking full enough account of unmeasurable uncertainty.”

3. Passive and active approaches

In competitive road cycling riders generally bunch together in a formation called a peloton. By so doing riders can swap turns up front, with those sheltering behind enjoying a reduction in effort of up to 30%.

Whilst the peloton saves overall effort, it is common for individual riders to take a risk and break away, expending enormous energy in the hope of beating the pack to the line. Mostly these attacks (particularly solo efforts) prove futile. Occasionally however the extra effort pays off and a lone rider finishes ahead of the peloton. Seldom does the same rider succeed at consecutive breakaways. Breakaways are, in essence, a high effort, high payoff strategy with a low probability of repeated success.

In the world of investing the breakaway rider is akin to the active investor; one who is prepared to expend extra resources in order to beat the market. Active investors believe that markets are inefficient enough to allow them to get ahead and stay ahead. As with racing cyclists, active investors are buoyed by the prior success of other active participants, and although they rarely succeed in winning the tour, they have their moment in front of the cameras. Active strategies appear to work just often enough to encourage others to do the same.

4. Data, data everywhere

Road cycling today is a highly data-driven activity. Real-time data is generated from both rider and machine including power, cadence, heart rate, speed, rate of vertical ascent and other metrics too numerous to list. And so it is with investing. Investment data is now available in a 24 hour cycle at the click of a mouse or tap of a smartphone app.

This data reliance by both cyclist and investor stems from the same assumption; that if some information leads to improved decision-making, a great deal of information must result in optimal decisions, and thus superior performance.

Data availability is, however, a two-edged sword. When fatigued, trying to make sense of, and act coherently on, the multiple data sets spinning on my bike computer becomes problematic. And so it is with investing. Beyond some point, additional data only complicates the task of separating valuable investment signals from useless noise.

Come in spinner

Cycling and investing have much in common, moving forward as efficiently as possible on the road journey or the wealth journey. Both activities deal with dynamic systems (weather/markets) and both involve an element not just of risk, but of uncertainty. For the competitive there’s always the thrill of beating others and taking the top step on the podium.

As for me, I’ve mellowed from my speed-seeking younger days to embrace a more cyclo-tourist philosophy. Once addicted to the rush of high peaks and plunging descents, I now prefer gently rolling terrain. Sure, the destination’s important, but let’s enjoy the journey along the way.


Harry Chemay consults across superannuation and wealth management, focusing on post-retirement outcomes. He has previously practised as a specialist SMSF advisor, and as an investment consultant to APRA-regulated superannuation funds. Harry’s two decades of experience in finance and investments is exceeded by his three decades as a cycling tragic.


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