As a marathon runner in my personal life and an investment manager in my professional life, I have found that there are several traits necessary to be successful in both.  But let me be quick to point out that “successful” is a relative term.

I am a “middle-of-the-pack” runner.  Not the fastest, not the slowest.  I’ll never win any awards or accolades for my speed, although it has improved as I have become a more experienced runner.  My success in marathon running is purely a personal issue of me against the course.  If I cross the finish line, I win.

As an investment manager, my success is not determined by achieving the highest returns.  It is determined by the ability of my clients to reach their financial goals.  Everyone has different financial goals, resources and risk tolerances.  So, we work with each client to develop an investment plan unique to them.

One of the most important traits necessary to be successful in running and investing is Discipline.

It takes a lot of discipline to properly train for a marathon.  Some days you might not feel like running.  It takes discipline to get out the door and get moving.  A good marathon training plan calls for different types of workouts including speedwork, hillwork, tempo runs and long runs.  It takes discipline to stick to the workout plan and to make each workout a quality one that will improve your conditioning.

I think that it takes even more discipline to be a successful investor.  You have to have the discipline necessary to keep you from succumbing to the emotions that go along with investing.  When the markets are in turmoil, it takes discipline to stick with your plan and not give in to the panic.  When the markets are strong, it takes discipline to keep the emotion of greed from driving your decisions.  If you react to the panic, you will inevitably be selling your holdings when prices are low.  And if you allow greed to take control, you will be buying when prices are high.  This is not how a successful investment plan works.

My firm uses a disciplined rebalance strategy that keeps emotion out of the investment process.  When, due to market movements,  the percentage of the portfolio allocated to an asset class varies by more than 20% from the goal allocation, we rebalance back to the goal.  Here’s an example:  Assume that our goal allocation of US equities in a particular portfolio is 40%.  If the markets are good and our allocation moves to more than 48% of the portfolio, we will sell enough to get back to 40%.  On the other hand, if the markets are bad, and the allocation falls to less than 32%, we will buy enough to get back to 40%.

This rebalance strategy resulted in buying stocks back in March when equity markets were hitting multi-year lows.  It has recently resulted in selling some stocks following the big gains of the last six or seven months.  Buying low and selling high is how a successful investment plan works.

However, we are human.  There are times when I don’t feel like doing speedwork or putting in a 20-mile training run.  And it certainly wasn’t easy buying stocks back in March when it looked like the financial world was coming to an end.  That’s where discipline is important.

Having a plan and having the discipline to stick to your plan is a very important part of success…in running, investing, or most other areas of life.

Photo by:  William Murphy