Monday, July 24, 2006

What I learned watching the Tour

Wow, what a Tour! As anyone who wants to know, knows, Floyd Landis won!!

While not wanting to take the fun away from the event (I simply love the Tour and think the three weeks of the event is my favorite time of year), nor to read too much into it, there are some lessons (both financial as well as non financial that we can learn from his performance.

1. Have a long term plan. Floyd understood that day-to-day fluctuations would happen. That he may not have the yellow jersey every day. He showed patience and stuck to his plan where he could. He knew that the only time frame that concerned him was end.

In this light, he planned accordingly, used resources (energy) when needed and allowed other riders to have their days.

2. Hard work generally does pay off. Of course there are exceptions (and these exceptions are all too tempting to dwell on), but generally hard work is rewarded. Now it does not mean hard work equates with winning a Tour (I could ride 23.5 hours a day from now until next July and will still not win), but that hard work does make you better.

3. Landis did not panic when it looked as if he had lost the race on the climb to La Toussuire.

Rather, he applied sound financial logic and adopted a risky strategy and broke way early the next day to claw his way back into contention. Sure this was risky, but only if you look at total time. He viewed it as the only means of winning and thus, he really had very little to lose (what is the difference between losing by 8 minutes and losing by 15 minutes?).

This is very similar to notes I use in several corporate finance classes:
"Galai and Masulis (1976) show that debt in the capital structure may give shareholders the incentive accept risky negative NPV projects and pass on safe positive NPV projects. This happens when the benefits of the project must go to pay off debt holders. The shareholders will want to take on a risky project (even if it has a negative NPV) in order to have a chance at getting paid after the debt holders have been paid."

"Chevalier and Ellison (1996) apply similar logic and show that mutual fund managers who have underperformed their benchmarks increase the risk of their selections in order to “catch-up.” This is partially because of the high correlation between cash inflows into the fund (i.e. “new money”) and recent fund performance. In both settings, the situation is similar: unless something “big” happens, the principals get no, or a dramatically reduced, return. This creates incentives to take risks that in other settings would appear irrational."

4. Have confidence. When things went bad, he did not let naysayers dominate his thinking. Landis continued to believe he could do it. The press had given up on him, indeed fellow riders had written him off, but he kept believing. To quote Journey: "Don't stop believing".

In a time of "crisis" (after a bad test, injury, family problem, paper rejection, firing, etc) it is very difficult to believe in yourself.
But Floyd Landis showed us that things do occasionally turn. That with the right mix if confidence, help, and hard work things can turn around.

And while his team and coaches helped, without his own confidence, the race was over.

Most riders (even world class riders) would have packed it in and been content to wait for a future ride. Possibly due to the uncertainty surrounding his hip, Landis pushed on with a stubborness that was awe inspiring. More than physical strength (although the wattage numbers he was pedaling were simply staggering), it was this mental strength that won him the race.

5. Sports can teach us a great deal about finance and about life. For one, do not give up!! This may be the single most important lesson we can all take out of his ride. Oh sure we knew it before: "It is always darkest before the dawn" and "It's not over until its over" etc. but at the same time we all tend to occasionally forget. Or to think that those trite proverbs and sayings are just that.

Floyd Landis showed us that they are as relevant today (in whatever field we are in) as ever.

My hat is off to him. Great job!

As an aside, learning about life is just one reason why sports is so important. It provides us great reminders and learning opportunities. So the next time you think you are "wasting" time watching some sporting event, turn it around and use it as a learning opportunity that just happens to be fun!!


JF Rérolle said...

A few days later, would you make the same comments ...? to allude to finance, the analogy with a bubble phenomenon would have been more appropriate !

FinanceProfessor said...

Yes I think I would have. Although I might have added something about information assymmetries and problems with regulations. :)

At least until he has been shown to be guilty. So far nothing has convinced me.

it makes no sense why his T/E ratio would be high on one day and not the next given that Testosterone has not been shown to enurance performance.

and besides, how oculd anyone be so stupid as to use it on a day he knew he would be tested?!?! Additionally he then was clean afterwards...

Thus, I am holding out (a great deal of) hope that he is innocent.

Stay tuned. :)