Winning the Investing Race

The great American novelist, Ernest Hemingway, famously wrote, “There are only three sports: bullfighting, motor racing, and mountaineering; all the rest are merely games.”

Well, I’ve never been a bullfighter or a mountaineer, but I have spent plenty of hours behind the wheel of a racecar. And one thing I can say is that it certainly is a sport that’s well above the other “merely games” that I’ve played.

Now, perhaps it’s because over the weekend, I attended one of my favorite events of the year, the Long Beach Grand Prix, but my mind is all about racing and going fast right now. In fact, I just recalled that when I was first learning how to drive race cars, my coach used to tell me that as soon as I straightened out the wheels after a tight turn, that I should smoothly push my foot down on the accelerator as hard as possible to achieve maximum RPMs and maximum speed.

That thought came to me as a great metaphor for investing. You see, when you identify a great company whose share price is lining up for a big run down the straightaway, you want to straighten out your portfolio wheels and go full throttle into that stock. Indeed, that’s the prime directive for much of my investing thesis, especially in my trading services Fast Money Alert, Bullseye Stock Trader and High Velocity Options.

Interestingly, a different comparison between auto racing and investing came up during the pandemic-postponed Grand Prix of 2021. A friend then jokingly asked me: Do you know how to make a small fortune in auto racing? You start with a big fortune!

That same friend attended the 2023 Long Beach Grand Prix with me, and we talked about another observation that sparked the idea for this week’s issue. Here’s what he told me: “Jim, the racing business sort of seems like what you do. The team owners pour money into their people and products in pursuit of victory. And when it comes to investing, we put money into companies in pursuit of winning by growing our money.”

I thought about this observation for a few minutes, and then I came to the conclusion that my friend was partially on track (pun intended). You see, in some ways auto racing is similar to investing, but in other ways, it’s very far from it. Let me explain.

Like auto racing, investors want to win. And like auto racing, investors have to take risks to come out with a victory. If you want to win the Long Beach Grand Prix, you can’t just safely negotiate the 1.968 mile, 11-turn road course. Instead, you have to push, push, push all the way through, and you have to do each lap in about 70 seconds.

And if you want to win in your portfolio, sometimes you have to push things along by buying high-momentum stocks and/or out-of-the-money options on those stocks in pursuit of really fast gains, like the way we do in the aforementioned trading services.

Your editor in pit lane during the Long Beach Grand Prix pre-race festivities.

Yet, unlike auto racing, when we put our money into a company, our winning comes in the form of more money.

You see, in auto racing, particularly in the amateur and semi-pro ranks, but also largely in the professional ranks, the money you put into the venture doesn’t come back to you multiplied the way a good investment does. Sure, you might win a trophy, and it might be really fun, exhilarating and satisfying, but it’s going to cost you a whole lot of capital.

But when we invest, the trophy is the increased capital, and the bigger the gains, the bigger the trophy. So, unlike a pursuit that costs you money, investing is a pursuit that, when done properly, is going to make you a whole lot of money.

Another way to frame this for contrast is that unlike auto racing, investing doesn’t take a big fortune to make a small fortune. Instead, when you invest, you can take that small fortune and turn it into a really big fortune. And when it comes to investing, there’s no time like the present to go out on the “track” and test your driving skills.

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Wisdom of the Tailor

“The only man I know who behaves sensibly is my tailor; he takes my measurements anew each time he sees me. The rest go on with their old measurements and expect me to fit them.”

–George Bernard Shaw

In life, making adjustments and “taking new measurements” is essential. Not only in terms of your clothes, but in every part of your life. If something you’re doing just doesn’t quite fit well any longer, don’t try to conform to it. Rather, get a new tailor, take new measurements, and go out and find the right fit.

The Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods