What a Half Ironman Taught Me About Investing

This summer, I raced in a half-ironman competition. If you’re uninitiated to the world of triathlon, the half-ironman event involves a 1.2 mile open-water swim and a 56-mile bike ride, finished with a half-marathon (13.1 miles).

I invested time, energy, and money training for and competing in this event, both to test myself and earn bragging rights. This experience reinforced what I knew about investing, and offered new insights that surprised me.

Why 401(k) Default Options May Not Be Enough

I’ve been reading Misbehaving: The Making of Behavioral Economics by Richard H. Thaler. A point of interest is the discussion of automatic enrollment in 401k plans. Automatic enrollment may get employees started saving for retirement. But 401k default options associated with this type of sign-up (such as an investment choice of a money market fund and a savings rate of 3%) may be unlikely to help employees achieve the outcomes needed for a comfortable retirement.

According to Thaler, “Both of these default choices — the money market investment option and the 3% savings rate — were not intended by the employer to be either suggestions or advice. Instead, these options were picked to minimize the chance that the company would be sued.”

So, what’s the story about these default options?

Market Fluctuations: How to Act When They Happen

Chapter 8 of The Intelligent Investor focuses on dealing with market fluctuations. Graham opens this chapter advising investors to know about the possibility of these ups and downs. He urges us to be prepared financially and psychologically.

To be clear about the nature of potential fluctuations, Graham describes a probable set of circumstances. Within the next five years, shares of a given security may experience a 50+% price increase from its low point or a 30+% decline from its high point. Such changes in stock prices may bear no relationship to changes in economic values.

While the rise in prices sounds great, the decrease seems scary. Still, it’s this scenario for which Graham wishes to equip investors to withstand (and possibly profit from). He offers advice that I interpret in this way:

Understanding The Intelligent Investor by Benjamin Graham

I am collaborating with Joseph Hogue, Chartered Financial Analyst (CFA) on a chapter-by-chapter review and analysis of The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham.

We are reviewing the latest edition of the book that contains a preface by Warren Buffett, billionaire investor and Graham student, and commentary by Jason Zweig, a financial journalist who now writes a column for the Wall Street Journal. This edition covers investment history and Graham’s insights on current events through 1972. Zweig’s commentary is more recent, written from a 2006 vantage point.

Page 1 of 3123