There is no question that the two biggest stars of the 2016 Summer Olympics were Michael Phelps and Usain Bolt. In a sea of events these two athletes have something in common – they specialize in relatively short events. Bolt is best known for his 100M and 200M sprints. Phelps is also best known for his 100M and 200M races. Bolt, living up to his name, rarely races for more than 30 seconds while Phelps rarely races for more than a couple of minutes.
There’s no doubt that what Phelps and Bolt specialize in is extremely impressive. But there’s also no question that an event like the Decathlon is even more impressive. This is an event in which the competitors must throw, jump and sprint their way to victory over TEN different specialties. Individually, they can’t stack up against an Usain Bolt in an event like the 100M, but they must also spread their talents across many more specialties making their aggregate feat that much more impressive. But most people probably don’t even know an athlete like Ashton Eaton, the back-to-back gold medalist in the decathlon.
Why do we value these short-term events so much? I don’t really know, but I have a couple of guesses:
- Short-termism, the result of our reduced attention spans, lead us to believe that a very fast individual achievement is superior to many slower individual achievements even if the aggregate achievement of the slower athlete is extremely impressive.¹
- Benchmarking bias – an athlete like Eaton is difficult to size-up because he’s a jack-of-all trades and expert of none. He’ll never be the very best in any individual event which makes it difficult to benchmark his performance. As a result we tend to devalue his performance because he’s not thought of as “the best” at his individual events.
You can probably see the corollary to investing here. The jack-of-all trades who looks at things in the aggregate and wins one long multi-event race is a lot less sexy than the specialist who generates one quick specialized return. Investing, however, isn’t a sprint despite our obsession with short-term events. And the data confirms that those who try to win this marathon by running sprints are consistently underperforming those who view portfolio construction as a marathon.
This makes even more sense when you look at portfolio construction through an operational lens as I do. When we diversify our assets across stocks and bonds we’re dealing in instruments that are inherently long-termish. The aggregate bond market is an instrument with a maturity of greater than 7 years and the stock market, by my calculations, is an instrument that should be viewed as no less than a 25 year instrument.² These are marathon instruments that traders and the financial media are constantly treating like sprint instruments. And while the sprint is certainly more alluring than those dull longer events, we shouldn’t confuse our marathon for a sprint.