Melbourne Cup fever is upon us, and we couldn’t help but draw a few parallels between the world of horse racing and investing. Here is some wisdom that you can apply trackside, and when it comes to investing - on November 6 and beyond!
It’s easy to get excited when that horse bolts out in front on the 3200m Melbourne Cup course. In the end however, those patient stayers that know how to last the distance and not burn out tend to be the winner. Investing is the same - don’t get caught up in short-term fluctuations and look for the stayers.
A big win on one horse is always a temptation for the amateur better. But longtime racegoers think more about the best possible position, by placing bets on multiple horses in a given race. You’ll find similar principles when it comes to investing in companies. It’s hard to pick a winner in a certain theme, so investing in multiple businesses within the category is more likely to deliver results.
Track conditions are always changing, and many of us have been on the end of a losing bet after picking the crowd favourite, or that outside chance with the oversized odds. Behavioural science shows investors act in a similar way, often drawn to sectors or stocks that have outperformed the market in the past, in the hope they will keep on winning.
Many great performing sectors eventually revert back to the mean of their long term performance, so sometimes last years losers can be next years winners, and vice versa.
If you’re taking part in Melbourne Cup, best of luck. Enjoy the day, don’t overdo it and keep your head!
This article is general in nature, and has been prepared without taking into account your objectives, financial situation or needs. You should consider if the information is appropriate and whether you need to speak to an accredited professional.
CEO and Co-Founder at Zuper Superannuation. Loves fintech, writing, pilates, Campari and soda's and, as of 2018, marathon running.More