Yesterday we looked at the first part of my attempt to parallel the similarities between one of America’s most-watched sports, auto racing (i.e., NASCAR), and investing. If you haven’t already examined my first five points, I encourage you to go back and read those now before driving forward.
My contention is simple: NASCAR may be a popular, and somewhat repetitive, sport, with drivers chasing each other around a track. However, it has many similarities to investing that we can use to help us become better investors. With that being said, here are the final five ways NASCAR can teach us how to invest better.
6. Races are often won and lost by the decisions of a crew chief
I can’t tell you how many NASCAR races I watched in my teenage years that were won and lost because of a gamble of fuel consumption. Sometimes the crew chief was the savior, and occasionally he was the goat. The point is that having a good crew chief that a driver can trust is paramount to a team’s success.
In investing, you also have to have complete faith in the CEO of the companies you invest in. The CEO is essentially the crew chief of the company, being ultimately responsible for its innovations, successes, and failures. Having a great leader can sometimes make all the difference.
Take Apple Inc. (NASDAQ:AAPL), for example. Its co-founder, Steve Jobs, was the instrumental CEO and figurehead that transformed the company from just a PC-maker into a digital revolutionary over a decade’s time.
Apple Inc. (NASDAQ:AAPL) has sold 350 million iPods and 400 million iOS devices (iPhones and iPads) since they were introduced, and it has essentially changed the way we work and play.
On the flipside we have the recently ousted CEO of J.C. Penney Company, Inc. (NYSE:JCP), Ron Johnson. Johnson’s plan to completely phase out discounting at the retailer while introducing a mini-shop format within its stores alienated its thriftiest consumers and sent same-store sales plummeting nearly 32% in the fourth quarter. I cannot state enough how important a good CEO is to a company’s growth and well-being.
7. You’ll see a lot of pit stops
Unless carmakers can figure out a way to dramatically improve the fuel efficiency of NASCAR vehicles, or tire makers can produce a nearly indestructible set of tires, pit stops during a race are inevitable. Similarly, when investing, you’re going to have to make pit stops for various reasons.
The first pit stop you might make is simply to regroup. As an investor, you aren’t going to make money every single time you buy or bet against a stock. The top traders in the world generally only have a success rate around 60%, so the chances that you’ll never lose a cent are pretty low. The key to this pit stop is to stick to your investing thesis and understand that your long-term gains will more than likely trump your short-term losses by a substantial margin.
Another reason you might head for a pit stop in the investing world is simply to take a break. I may write about stocks, the economy, and investing year in and year out, but even I take vacations and unwind. Investing is important, but so are your family and friends, so make sure you incorporate some “me time” into your life.
8. Drafting helps drivers move up through the pack more quickly
Just like the old phrase that “two heads are better than one,” two or more cars that are running nose-to-tail and reducing the drag that air and wind can cause on both vehicles are likely to work their way up through the field faster than a single car running without a teammate. Likewise, in investing, it’s always nice if a company has multiple partners to help it get to the front of the pack.