I have been surfing since the age of 6. The sea, not the internet. As a result, everything in my life can be related to surfing and the ocean. It’s what I know best and have the most experience in. I have been in the ocean in many different conditions and although no one can tame or master it, we can make predictions and, most importantly, know when the risk versus reward is in line with our appetite.
A few months ago I opened an EasyEquities account and started investing in shares as a complete novice. I realised that there’s a lot in common between my life on the waves and my life buying shares.
Have you ever seen a surfer trade in shares, playing the stock market? I haven’t. It’s not normal for a surfer to dabble in such things. Too much salt between the ears maybe? Scratch that stereotypical bullshit and find out why a surfer is perfectly suited to become an investor!
1. Surfers Know The Importance of Balance
Every wave is different; a surfer has to continuously rebalance his position on a wave in order to keep riding it and get the most utilisation over the short period of time. Experienced surfers find more speed and drive by knowing where to find the most power in a breaking wave.
From an investor’s perspective, broad asset classes like stocks and bonds are similar to breaking waves in that their performance also ebbs and flows over time. Consequently, if left alone, an investor’s asset mix will eventually drift away from its power source, leaving you with no momentum to continue and essentially dead in the water.
Similar to surfers, individual investors will ride the market’s waves more efficiently if they develop game plans to systematically rebalance their portfolios’ asset mix back toward the optimal weighting.
2. Surfers Know Which Swells to Chase and Which Swells to Ignore
In surfing lingo, there are two basic types of ocean swells — wind swells, which are generated by local winds, and ground swells, which are generated by winds blowing over longer distances. From an investor’s perspective, wind swells are similar to the market’s short-term price swings – also known as volatility – in that they are short, fickle, and difficult to ride. Conversely, ground swells are similar to the market’s long-term investment trends in that they are long and fairly predictable and require little effort to ride.
Although the similarities between certain ocean swells and market trends are apparent, it seems surfers and investors pursue them very differently.
The average surfer prefers riding the ground swells and would prefer to take time out and recoup rather than to waste energy chasing fickle wind swells.
This is also a good strategy for the long-term investor. It’s tempting, especially for the novice investor, to overlook the market’s predictable long-term investing trends while fruitlessly attempting to ride the fickle short-term price swings. These investors tend to “wipe out” when trying to time the market’s short-term directional changes. From an investor’s perspective, it is far better to ignore the market’s short-term price volatility and ride the more predictable long-term investing trends instead. Schooled by a surfer again?
Easy Equities provides comprehensive tools to properly research and predict market trends. One such nifty resource is the EE Insight Bytes.
3. Surfers Know the Importance of Holding a Diverse Quiver of Boards
Some days the waves can be 10 foot and solid, other days they can be 2 foot and sloppy. This volatility is an important aspect of surfing because different ocean conditions call for different surfboards. Avid surfers know they are required to own a diverse collection of surfboards, allowing them to ride a variety of waves. From an investor’s perspective, market conditions are also constantly changing and, as in surfing, no single investment vehicle works well in every market condition. Thus, diversification is as imperative when investing as it is when surfing.
Surfers understand the importance of diversification, but studies have shown that most individual investors struggle with the concept. Research shows that many large individual investors hold under-diversified investment portfolios, which ends up being a costly mistake for most. An investor’s failure to embrace diversification as readily as surfers is likely a result of the lack of accurate feedback in the investment world.
You cannot paddle out at 15-foot Dungeons in Cape Town with a surfboard made to handle 5-foot fickle beach break waves. Simply, your board will not handle and you will most likely end up having the biggest wipe out of your life (much to the amusement of onlookers).
The fail that under-diversified surfers experience when attempting to ride the same surfboard in every condition is obvious. In contrast — perhaps because investing is more of a mind game than a physical one — investors seem to have trouble deciphering whether or not they are failing.
For instance, a paper titled “Why Inexperienced Investors Do Not Learn: They Do Not Know Their Past Performance” notes that fewer than 5% of the investors surveyed believed they experienced negative returns while more than 25% of them actually did. Investors would benefit from more-accurate feedback regarding the performance of their investments and a higher level of portfolio diversification.
Investors can learn more than a few lessons from surfers, the most important being that both the market playground and the surfer’s playground are complex and unruly at times. It’s not easy to predict or beat them, so you’d better learn to go with the flow. If you chase the right swells, rebalance systematically, seek accurate feedback, and hold a diverse quiver, you will greatly increase your odds of catching a rewarding ride.
Jono Bruton is founder of Dead Reckoning Brand and Salty Hour Community. He’s an insurance broker by trade and a surfer by lifestyle.
Follow @DeadReckCrew @EasyEquities