Three months ago a seventy year-old lady was making national news by running in the latest Boston Marathon. Her name was Kathrine Switzer, who 50 years earlier had become the first woman to compete in the race, though one official tried to pull her off the track after a few miles. I smiled as I read of her effort because it brought back the lesson Kathy taught me 44 years ago.
1973 was my second year of long-distance running. The local running club was sponsoring its second marathon with hundreds of runners participating. I had trained hard and believed I was ready to maintain an eight minute/mile pace. I knew a lady from New York named Kathy Switzer had been invited to run in our race as a celebrity entry.
The race began and I was running consistently at my eight minute pace after six miles, when 25 year-old Kathy ran by me. She was an attractive young woman and as I watched her move significantly ahead of me, some macho hormones got the best of me. This woman was running only a little faster than me and I am a man, even an athlete in my imagination. So, I picked up my pace to about seven minute miles and passed Kathy at mile ten. The next four miles went well, then my body began rebelling. By mile 16 I had such painful stomach cramps I could only tiptoe down a half mile long hill, as Kathy passed by me. My race was over and I walked/jogged the last ten miles, finishing the 26 mile race at a nine minute pace, far short of my goal.
What happened to me has happened to investors. An investment strategy can be well thought out, but emotional choices, impulse spending, and not focusing on the big picture can significantly damage a nest egg. Dalbar Inc., a financial services company, calculates average investor returns utilizing the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investment behavior. From 1997 through 2016, they calculate that the average investor has made 2.3%/year while J.P. Morgan reports that a 60/40 allocation, rebalanced annually, could have returned 6.9%/year! 1 I believe much of this underperformance results from inconsistent behavior and not sticking to a plan.
In 1975, two years after my failure, I stayed on my eight minute pace throughout the race, despite temptations to change my plan. There is always an excuse to explain alterations, but a good investor needs to focus on the plan.
Forty years after my Kathy Switzer lesson, Janet and I found ourselves trying to climb Pike’s Peak. Janet wrote a poignant story of this struggle in our 3rd quarter newsletter of 2013, available on our website. The relevant part of this story is on the second day I found myself at the tree line 12,000 feet high, doubting whether I could make it to the top. Two new friends, Larry and Shawn, sat and encouraged me to move ahead. I remember as they put their backpacks on and headed on up the mountain, Larry softly said to me, “Slow and steady, Frank, all the way to the top.” As I pondered his words, I realized I was three miles from the top with 2,100 feet of elevation gain. Knowing I was managing about a foot and a half stride, it came to me that I only had about 10,000 steps to make. With a hundred steps before each rest, I could reach the summit in 100 walks. Somehow, this impossible goal became achievable. Breaking down a big task, like saving a million dollars by retirement, needs to be broken down into smaller parts, like saving 10% of your salary each year for retirement. Forty years later you will be at your summit. Whether distance running, climbing, or investing, “slow and steady” is excellent advice.
1J.P. Morgan Asset Management, Guide to the Markets, June 2017, page 63.