A mid-life fitness crisis and improving as an investor

If you spend any time on social media geared towards middle aged people, there’s a joke that all men get ridiculously obsessed with one of a handful of things as they hit middle age. Options include, but are not limited to:

• Roman History

• Bird Watching

• World War II

• Craft beer

• Running marathons

• Whiskey / bourbon

For me personally, I’ve gotten more into fitness. Now, I’ve always been into fitness, but since I had my daughter I’ve probably taken it up a level (I quit drinking, vastly improved my diet¹, tried to tame my sweet tooth², have spent more time on mobility³, etc.).

In June, I did two different fitness competitions, including running my first Hyrox race. If you haven’t heard of a Hyrox, it’s the race that all of your friends who are really into crossfit will be obsessed with in a year or two (if they’re not already); basically, you run a kilometer 8 times (so 8 kms in total) and after every kilometer you have a different non-running event (pushing a heavy sled, 100 wall balls, rowing 1 km, etc.). The whole race takes anywhere from an hour (if you’re pushing for a world championship⁴) to two hours (if you’re just there for the vibes).

Anyway, you’re not here to read about my Hyrox experience (though I had an absolute blast and am really looking forward to doing another!), so you’re probably wondering what the heck my middle aged mini-fitness crises has to do with investing.

Quite a bit in my opinion! There were three thoughts that were kind of floating around my head that relate to investing / that I wanted to flesh out a little further. They are:

1. Pushing through barriers other people break

2. The visibility factor

3. Having a support system

In my mind, all are kind of interconnected, so let’s just dive in and start discussing. We can start with:

• Pushing through barriers other people break

One of the nice things about a Hyrox or any type of race is there’s a very simple scorecard. You run the race, you get a time, and that’s how you judge yourself. If I run the race in one hour, and you run it in fifty minutes, then it’s basically settled who the better runner is⁵. Obviously there can be some extenuating circumstances; maybe we both ran the same distance but I did it uphill mid-day in the dessert in 100+ degree heat and you did it in a controlled temperature track. Or maybe we ran the same race / distance on the same day, but the night before I got violent food poisoning so I wasn’t anywhere close to 100%. So, yes, maybe you can caveat it a bit, but in general if two people do a race and one comes out faster, you know who the fitter / better racer is.

Now, there’s this really interesting thing in racing and human psychology: when you see someone else do something, you’ll often find barriers that you didn’t know you had fall easily. This is probably most famously illustrated⁶ with Roger Bannister’s four minute mile. People said a four minute mile was impossible before Bannister ran it… then he ran a four minute mile, and less than two months later someone else ran a four minute mile. Today, elite high school athletes regularly break four minute miles.

I’ve seen this in my personal fitness too. I’ll give a somewhat loose example: in college, I took up rowing and got pretty serious. ~A month after I started, I did my first 2k (the most important distance / time result in rowing) in ~7 mins (to make the numbers easy). After a few months of training, I did another 2k and came in around 6:45. A nice bit of improvement…. but a friend (who I thought I was better than) did a 2k as well and came in with a time in the low 6:30s. Knowing that, I did another 2k ~two weeks later and… boom, I had taken another ~15 seconds off my time and was now in the 6:30s. That’s an enormous improvement; remember, as your time improves, cutting the same amount of time off takes exponential improvement (i.e. going from an 8 minute mile to a 7 minute mile is tough…. but dropping by another minute to a 6 minute mile is really hard!). Obviously two weeks isn’t enough time to make major physiological adaptations versus the several months I had been training previously…. but psychologically knowing a friend was able to do that time made me able to push myself that much harder. Just looking at those numbers, you could argue the psychological push was a bigger improvement factor than the months of training (though obviously there are complex links between the two; without any training my time would have clearly gone way backwards so one is necessary for the other!).

What does this have to do with investing?

I’ve been wondering: what is the “pushing yourself because someone broke a four minute mile” equivalent of investing?

I know a lot of people will say, “investing is an individual, mental game; you need to have an inner scorecard / be internally driven to do it. If you need someone to push you, you need to find a different field” And there is certainly some truth to that! Ultimately, investors need to be internally driven to learn / push to be successfully.

But that doesn’t change human psychology! Knowing someone else has broken some barrier can push you to go harder / be better in literally any field⁷. That was the case with the four minute mile (or with my 2k in my personal example)…. so what is the four minute mile equivalent of seeing someone do something and pushing in investing?

The tough thing about investing is that there is ultimately a scorecard (your long term returns), but you can’t really use the scorecard to judge another investor except for on a very, very long term time horizon. Let me use a huge hypothetical. Say you were up 20% in a year, and you have a friend who was up 200%. Case closed, they’re the better investor, right?

Of course not! This isn’t racing where you can just look at the number and judge it in a relative vacuum. Your friend may have just got lucky! Maybe he was up 200% because he was taking some insane risk. Maybe he had 100% of his portfolio in a drug readout that came up his way. Maybe he just yolo’d call options. Who knows? But it makes judging investors based on a single year’s results extraordinarily difficult.

So maybe one year results can’t be used, but surely using a five or ten year track will solve that problem? It’s better…. but, in a concentrated portfolio, even a five or ten year track might only reflect a handful of bets! Yes, you’d rather be running 30% annualized than 10% annualized…. but a single good bet could be responsible for the entire difference, and while you’d certainly rather the higher number, it’s hard to say that one bet going one way or the other is statistical proof that one investor is better than another.

Bottom line: I’m a little skeptical of using short or even medium term results solely to judge an investor… So if you can’t really use returns to benchmark yourself, what can you use to drive yourself to be better?

I have an idea of it… but I’ll come back to it, because I think it pares nicely with my next thought.

• The visibility factor

When you go to a Hyrox (or any fitness competition), you can pretty quickly get an idea of who is going to be towards the top of the pack just by looking at people. See the guy in the corner with a visible eight pack who’s warming up by doing explosive burpees and handstand push ups? Yeah, he’s probably going to be pretty fast. In contrast, the guy in the corner who’s lugging around a bit of a spare tire in the midsection and warming up by touching his toes a few times? He’s probably going to be towards the middle or back of the pack (note: I’m talking about myself here!). I call this “the visibility factor”; just by looking at someone, you get a decent idea of how they’ll perform.

Can looks deceive? Absolutely! Someone who is really muscular might be an awful runner and thus be way behind in the run, and someone on the pudgier side (again: talking about myself!) might be a former cross country star who is still very fast (not talking about myself) and is going to really crush the race…. but, in general, you can pretty easily guess where people are going to perform just based on a glance at them.

Investing is obviously a mental “sport,” not a physical one, so you cannot tell if someone is going to be a good investor by looking at them. In fact, looks might be a contra-indicator; someone who is a little unkempt / disheveled might actually be a better investor because they’re kind of lost in their own head / thinking about investing, not staring in the mirror⁸.

So what’s the investing equivalent of the visibility factor?

You’d think the answer is how well the person presents ideas, whether it’s writing them or pitching them…. but I think that answer is clearly wrong. Public pitches can be deceiving; a pitch done by a more charismatic person who has practiced it a few times is going to sound way more compelling than an off the cuff pitch done by someone with less charisma. And a more complex idea is always going to sound better in a write up than a simple one, even if the simple one is much better!

I’d also note that it’s very easy to make a compelling pitch without doing much work if you’re reasonably charismatic. I’ve said a few times that good ideas are plentiful in investing…. but that’s probably not quite accurate. Good investment pitches are plentiful in investing; really good ideas are probably rare! I think just about anyone with decent investing knowledge could do a solid pitch on a company inside of an hour if you just gave them a good investment write up or three.

I’m obviously not saying a good pitch isn’t a sign of good work! But it’s just a byproduct, and it’s one that can be faked. Let’s turn to fitness again for an analogy: a great way to look really fit is to just be really fit…. but, if you only care about how you look in photos, taking photos at just the right angle in just the right light with your body in specific postures can make it look like you’re really fit for people who only see that one photo. A good investment pitch is kind of similar; if you’ve done a ton of work you can hopefully come up with a good one, but absent that someone who is a naturally talented presenter could probably do a good pitch with 30 minutes of careful structuring.

I think the thing that really signals “depth of work” is how a presenter is able to respond to questions. When I talk to the investors who I personally admire the most and compare them to investors who I kind of think are just average, I’ll see two big differences in how they talk / respond to questions:

1. It is really rare to ask a really good investor a question about an investment they’ve made and find they haven’t thought about the question before. If they’ve made an investment in a company, they’ve spent so much time thinking about the company already that any question you have about the company they’ve already thought about / answered. In contrast, when you talk to average investors, there will be lots of questions that they don’t have the answer to / haven’t thought about already.

2. Good investors normally sprinkle in lots of real world anecdotes to back up their broad claims. Ask an average investor about the lock in effect of a software company they’re invested in, and they’ll quote from the most recent earnings result something like “in Q2, net revenue retention was 105% and churn was under 1%.” Ask a great investor the same question, and they’ll tell you the same thing…. plus give you two anecdotes from customers they’ve talked to who explored leaving the software and decided it wasn’t fiscally feasible for XYZ reasons.

I’ll give you an example just because it’s top of mind / so recent. Go listen to my recent CLBT podcast with Orel Levy. Orel is not only able to answer every question I ask him, but he answers a lot of them by talking about what he’s heard from customers he’s talked to. That type of anecdata is powerful in building conviction in ideas. I’m not saying that CLBT is a great investment just because Orel has talked to a bunch of customers (though I hope it is: disclosure, I have a small position⁹), I’m just noting that’s the type of work you see from people who have done really good fundamental research.

Anyway, I’ve basically asked two questions so far in this post:

• How can you find the same type of external push / motivation in investing that exists in any sport?

• How can you quickly judge who is “in shape” and doing real interesting work on ideas in investing in the same way you can tell if someone’s in great shape by looking at them quickly?

Let me tie the two together, because I think the answers are connected.

The thing that pushes me personally to be a better investor is when I talk to (or read!) an investment thesis from someone that just blows me away. Whenever I talk to someone who has clearly done great work on a name, I’m always a little jealous…. but also always walk away from those conversations / readings thinking to myself “how can I get better? what did they do in their research process that I can add to my own? What edge do they have on their names that I can look for on my own?”

Perhaps the motivating factor for pushing yourself is different for other people, but that’s what it is for me. And that’s one of the reasons I really like doing the podcast; I enjoy all of them, but every now and then their will be a podcast with someone who is just spectacular and it’ll really push me to improve my process / push myself.

Having a support system

This post is insanely long and ramble-y, so I’ll try to make this quick… but two of my best friends surprised me at the Hyrox and cheered me on. If you had told me before the race having friends cheer me on would make a difference, I’d have told you you were crazy…. running a race is a solo sport, and I know how to push myself with or without an audience.

But having two friends there made a real difference: it made it more fun, and I think I pushed myself just a little harder knowing they were there / not wanting to embarrass myself in front of them.

Similar to running a race, investing is a solo sport… this is especially true for small, solo operators (where my friends and podcast guests disproportionately lie!), but it’s generally true for just about anyone who is serving as a portfolio manager. They are ultimately the ones making the buy/sell decisions, they’re the people putting their names / reputations on the line, etc.

So if having a support system makes a race better (both in terms of fun and performance), what’s the equivalent for investing?

Honestly, I’m not sure. My initial thought was “the support system is bouncing ideas off investor friends, talking with them, and maybe diving into due diligence with them.”

And those are absolutely really fun and valuable tasks…. but I’m not sure those qualify as “support systems”, and I’d note that those run enormous echo chamber risk. There are a group of investors that, time and again, tend to be long the same stocks (and I can be a part of some of these groups sometimes!). That happens because they’re all talking and swapping notes, and often these investors are very, very sharp…. but you have to wonder about the huge echo chamber risk potential there.

So, yes, the support system of friends helps…. but the echo chamber risk scares me as well. Perhaps this is where the analogy breaks down…. training for and running a race can be difficult / challenging, but investing? Man, investing is hard.

1. Mini-fitness hack: I linked to the big David Bar profile last month, but I will confess to being an enormous fan of David bars. I eat one pretty much every day pre or post workout. They are absolutely not cheap, but they’re the best protein bar on the planet IMO, and I am very much preaching what I eat here. So if you’re looking to lose weight, cannot recommend highly enough.

2. Emphasis on tried. I’m still a cookie monster.

3. Instead of “more” I could have also said “some” and gotten the same result, as I was spending no time on it before!

4. Or if, like me, you drastically overestimate your fitness levels and tell all your friends you’ll do an hour no problem…. and then quickly realize during training you’re not a big runner and it’s going to be an issue!

5. If the race we are talking about is Hyrox, those times would also make you the world champion and likely an alien, as I believe the world record times are in the low 50s

6. Though an interesting example I loosely heard about recently is Cliff Young, who demolished an ultramarathon record at the ripe age of 61. I mention this example because every runner in that race broke the course record; pushed by some wild outlier performance, everyone seems to have gone to new, elite levels.

7. For last month’s book club, I read Softwar on Larry Ellison. Ellison is famously really, really into competitive sailing, and he’s always asked if it’s a distraction. He has a really interesting answer in the book; I won’t quote the whole thing, but to paraphrase he basically says “winning is a mindset, and the tools that we use to win at sailing sharpen the tools and mindset I use to win at Oracle.” Do I agree with him? I don’t know!!! But I definitely see where he’s coming from, and I don’t think it’s an accident you see so many people by high level in multiple fields.

8. At least, this is what I tell myself when I forget to shave for a month and see myself on a podcast looking like a homeless person!

9. I’ll note that I took a CLBT position for a lot of reasons, but the Orel podcast and the transcript on Trata really lay out the bull thesis nicely. Would encourage you to check out both!