Long Term Investing and Fitness- Two Sides of the Same Coin

“Always remember that the future comes one day at a time.” - Dean Acheson

Hello,

Hope you are safe and healthy!

Today I’d like to highlight how fitness and long term investing, two disciplines that I follow, are identical in their basic principles.

Ignoring the Noise:

Social media overloads us with information and makes it difficult to filter out what is really important in our lives. Be it the hottest fad such as investing into crypto currencies or buying that stock which has given 10x returns in a couple of months or doing that high intensity workout which promises you a physique like your favorite celebrity’s in just 30 days.

The problem with these approaches is that people are looking out for instant results, be it becoming a millionaire in 30 days or becoming ripped in 30 days. If they do not achieve the desired result, which is 99.99% of the time, they are left feeling disappointed. This creates a vicious cycle of low self-esteem leading to lower energy and ending with poor results.

Fitness and investing involve sticking to the basic principles for a long time. In fitness be it weight lifting, running, yoga or any other movement, we get only marginally better with each session and as these sessions keep on accumulating, they create a powerful compounding effect.

Slowly at first, then faster you will be lifting the heaviest of weights, running the fastest laps and doing the most complex yoga poses by just sticking to the process.

Similarly in investing, after you have studied the companies you want to invest in and actually remained invested, the compounding effect plays out slowly and steadily as the company grows from strength to strength over long periods of time and one day your wealth has compounded by a staggering amount.

Again, the idea is to just stick to the basic principles and ignore any noise you may hear from social media or any other “news.”

To sum up, most people tend to get bogged down by noise and the lure of FOMO and are not able stay invested in their stocks or fitness routines.

The Power of Compounding:

“Compounding is the 8th wonder of the world, he who understands it, earns it, he who doesn’t, pays it”- Albert Einstein

All of us must have had the above line thrown at us often to make us understand the power of compounding. I would like to draw on my own personal journey to explain the power of compounding. The most important part of the journey is to remain invested and be patient. As the results begin adding up, one starts to fall in love with the habit.

When I first started running, I could barely run a kilometer. I would gasp for breath and feel demotivated most of the time. The only thing that really kept me going was an excellent playlist of my favorite music running through my earphones.

As time went on I was able to scale this 1 km up to 1.2 km, 1.3 km, 1.4 km. Each time I would set small goals, and achieving these goals would be small victories. The next thing I knew I was running the Mumbai Half Marathon which is 21 kms and I have gone on to do multiple half-marathon for several years. My initial goal was never to run a half-marathon but just to go out there and complete that kilometer on a daily basis, which eventually lead to the Half Marathon.

Long term investing follows a similar trajectory. I won’t name any stock in this particular post. The company which has been consistently giving you 9-10% returns every year may seem boring but scale this over a 10 year period and you get to sit on a massive pile of wealth.

Here is a powerful picture on compounding from James Clear’s book- Atomic Habits

Plateaus are a part of the journey

You may have observed that you have been trying so hard to get that six-pack or that toned physique and it’s taking much longer than you planned. Similarly, you may have invested in that stock after months of deep level research and that stock is barely moving the needle.

There may be weeks at a stretch or even months where you feel you are not making progress because you are stuck at those 20 push-ups or you keep doing those 6 minute/kilometer laps and just can’t get faster or in that company that you invested in, that is delivering excellent growth numbers quarter after quarter but the stock price barely seems to move an inch upwards.

Then suddenly, one day, you do 21 pushups, 22, 23 and you do that 5 minute 50 second/kilometer lap a 5 minute/kilometer lap. Similarly your investee company suddenly sees its stock price rising at an explosive pace because the market has finally started acknowledging the earnings compounding factor and growth prospects.

We need to keep pushing through monotony to break out of these plateaus and into the highlands.

“The game of professional investment is intolerably boring and overreacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll.”- John Maynard Keynes

“The difference between those who adapted and those who didn’t, Gorton said, was a willingness to totally commit.”- Arnold Schwarzenegger

Don’t leave processes on auto-pilot, always pause and reflect:

When we invest in our bodies or invest our hard earned money over long periods of time with immense discipline, how many times do we sit and reflect on these activities? Are we aware whether our current schedule is doing us more harm than good?

We have grown up in a society where we are afraid to question the things that we do in our everyday lives and just accept a lot of things that happen in our lives as the norm. I wanted to highlight this with some of my own examples.

Around 2013 I had a physical routine of working out twice a day because I felt that that would be the perfect way to optimize my performance. I thought that that was the best way to stay healthy and fit. This conveniently allowed me to binge on greasy foods and party hard over the weekends or on the odd weekday without much guilt.  

Little did I know that over the time I was harming my body. I researched the various aspects that optimize the human body and mind like nutrition, sleep science, adequate recovery. Over a whole year, after making multiple mistakes I realized that a perfect balance between all these various parameters would eventually help my performance and keep me going for the long run.

Even today I know that there are aspects of health/nutrition that I may be overlooking, but it is important to keep informed and be open to change rather than blindly following the dogma that society feeds us. The learning process in life never stops.

As is the case with 99% of beginner investors, I too started off my investing with a trading mindset. I would hold on to a stock and sell it at the whiff of a 30-40% upside and look for the next opportunity. Some stocks I would buy and hold for a specific period of time hoping for the fortunes of the business to change. If the stock price had not moved as per my expected timeline, I would sell it off and go on the hunt for the next great stock. This process was thrilling in the beginning but it was certainly not sustainable.

I would stress out or panic when a stock fell 15-20% because I had no idea about the fundamentals of the business. This is what happens to most investors in the market; they invest based on a tip that someone else gave them and basically walk into the trade absolutely naked. When sharp falls in the stock occur, beginners do not have the stomach to bear the downside and eventually exit at a loss.

This dilemma often happens with long term investing as well. We invest in a quality business and eventually forget about that investment. There are have been so many cases where you would have made sub-par returns but you would still continue to hold the stock because “it is a quality business”. It’s important to invest in quality businesses, but that does not guarantee that the business will keep growing at a certain rate for eternity. It’s important to reflect and go through the numbers of these companies on periodically to see if it’s still on track.

The world is changing rapidly, technology and innovation are disrupting even the mightiest and oldest of businesses in the world. So it’s important to be alert and always be on track.

Here’s a story of Sir Isaac Newton which shows that he was a mortal just like all of us and was lured by quick money in the stock markets.  

https://physicstoday.scitation.org/doi/10.1063/PT.3.4521

Quick Fixes are a sure shot recipe for disaster

We tend to admire the fastest growing companies and the most athletic of persons and then unthinkingly make these the measuring rods for success.

Don’t forget that companies resort to activities such as channel stuffing, capitalizing expenditures, constantly changing accounting policies to make numbers look rosy to the outside; athletes and celebrities resort to taking banned substances to resort to fast, short term results thus creating a false image to the general public.

To the outside world the external appearances may paint a rosy picture but what is actually happening behind the scenes is a disaster in the making and the collapse is inevitable, swift and painful.

I am noting two pictures down here which relate to quick results gone wrong:

Delayed Gratification

Investing today means deferring current consumption for a better tomorrow.

Exercising today means having a healthier tomorrow.

I would like to leave you with an analogy:

“Your physique is like your net worth.

 Good choices compound over time, bad choices also compound over time.

Most people are drowning in debt (body fat) with no assets (muscle) to go with it.”