6 things that surfing can teach you about investing and personal finance

Today I’ve got a guest post coming at you from Troy over at markethistory.org. Troy runs a small hedge fund that invests in S&P 500 ETF’s. He employs a quantitative strategy that combines fundamentals and technical factors. Feel free to follow him on twitter.

6 things that surfing can teach you about investing and personal finance

Anyone who reads my blog would know that I’m an avid surfer. I usually go 3-4 times a week in the morning, which means that I also get some really good photos at dawn.

Like investing, surfing is a rather lonely and individual activity that yields great rewards for those who know what they’re doing. Here are 6 things that surfing can teach you about investing and finances. 

#1

Patience is one of the most important virtues in surfing. Waves do not all break in the same place, so as a surfer I have to sit in the same spot for minutes (which seems like hours in the water) and wait for that perfect wave to come along. It is better to sit in one spot and wait for that perfect wave than to paddle around looking for waves.

The same can be said about investing. It is unnecessary to always be fully invested. There will be times when the market is dirt cheap and every asset seems like a great bargain buy. Those are the times when you should put everything you have into buying assets. There are other times when the market is exorbitantly expensive and valuations are crazy, such as housing in 2006. In those times, it is best to do nothing. Sit there with your cash and be patient. Wait until prices come down and valuations become reasonable. Then invest.

#2

Surfing is arguably one of the most difficult sports to learn. You can learn how to ski and not fall with just a few lessons. It only took me 7 lessons to become proficient at snowboarding. But surfing is very different. It requires a lot of practice and takes a long time to just stand up on a board! It took me 2 months of surfing every day just to stand up on the board consistently without falling off.

Investors know that it takes years to become a skilled investor. It is a slow and steady game that requires countless hours of analysis, studying, learning from others, and reading. Under these situations, persistence and determination is the most important traits that an investor can have. Since investing is a slow and steady game, there is no need to dive head first into the deep end. Read as many investment related books as possible and broaden your knowledge about the financial markets. Start following financial news sites such as CNBC.

#3

Don’t be afraid to take calculated risks. Just get on any wave that looks good. Clean, good looking waves always have a chance of pummeling you, but those odds are low. In addition, you can always climb back up and get on the next wave.

Some investors are too trigger-scared. They are afraid of taking risks even if those risks are unlikely to occur and are well calculated. Being afraid to pull the trigger on an investment is just as dangerous as being too trigger happy (i.e. plunking money down in any asset that your “gut feeling” tells you to buy). It’s impossible to become rich without taking some risk. There is no such thing as a “risk free” return.

#4

There are sloppy waves that only last a few seconds and there are beautiful waves that can last up to a minute. Surfers know that quality beats quantity. It is much more enjoyable to ride 5 really good waves in an hour than to ride 10 choppy waves.

The same concept applies to investing. It’s better to hit a few homeruns than to hit many small 5% gains. Since not all your investments will turn out to be winners, it’s important that your big gains more than make up for your small losses. This means that you should invest in fewer markets/assets and be more selective about which investments you do make. The more confident you believe in a market, the more you should invest in that market.

#5

All surfers think about how they’ll get off a wave before they get on that wave. If the wave is too small and there’s a massive one behind it, they will not commit to the small wave right now.

Always think about the next step. When you buy, think about when and how you’re going to sell! Under what situations are you going to sell? Does the market have to rise eg. 200% before you’ll sell? Are you going to scale out of your position on the way up? It doesn’t matter how you plan on selling selling. The key thing is that you have a plan. You’d be surprised at how many people don’t plan ahead.

#6

The quality of the waves mostly depends on the direction of the wind. If the wind changes direction, the waves can change from clean (good) to sloppy (bad) within a few hours. And since the directions of the wind changes all the time, this means that surf conditions can change drastically in just a few hours.

This lesson tells us that investors need to be flexible. You need to be flexible in your market outlook because conditions change all the time. The state of the economy can change rapidly, political winds change, etc. You need to always be reading the most up to date financial news and be open to changing your market outlook. Do not marry your position. Do not remain bullish on the market simply because you have a long position in that market. Let your outlook determine your portfolio, not the other way around.

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