Eliud Kipchoge broke world marathon record at the Berlin marathon in September 2018 race. He followed a negative split strategy which means ……… he finished second half of the race faster than first half , a full 1 min 33 seconds faster!
Indian middle distance runners, Jinson Johnson (1500 mtr) & Manjit Singh (800 mtr) followed the same strategy for gold in Asian games 2018, both ran negative splits.
And in the recently concluded Chicago marathon( Oct 2018) , Mo Farah was nowhere in Top10 till the 25km work, and then picked up pace and was the winner.
Each one of us can run negative splits, if trained well. Unfortunately, most runners don’t.
Instead, they take off in a near sprint, hang on through the middle and end up in survivor’s shuffle.
In the above case all the athletes ran different distances; marathon to middle distance race.
While investing one has to consider both long and medium termgoals.
One doesn’t need to be an elite runner to run like Kipchoge, Jinson or Manjit.
In contrast, those who opt for negative splits patiently run a bit slower for the first third of a run, pick up & maintain steady pace in middle and finish strong with strength and speed.
The same phenomenon applies to investing as well. One needs to take into account three phases of investing:
1. Accumulation (Run Steady)
2. Consolidation (Build Pace & Maintain)
3. Distribution (Finish with Strength & Speed)
Accumulation Phase – Earliest stage in an investors life cycle or a marathon where investor set goals based on time frame & start to accumulate financial / non-financial assets. A runner runs steady in this phase. There is considerably longer investment time frame; hence investor should be can bear more volatility.
However ,as cash flow dynamics and expenses change there can often be short term or emergency requirement needs that must be considered. As a investor you need to be steady and adopt multi horizon investment time frame.
Consolidation Phase– Refers to stage when wealth accumulates more rapidly. In this phase many of life’s large capital expenditures such as home, car and immediate cash needs are already addressed partly by self funding and rest through EMIs. Interesting aspect in this phase is that , typically income exceeds over expenses . Hence you may be tempted to take a few unwarranted / inappropriate financial decisions such as : add more real estate or buy fancy car etc.
However, I would strongly recommend to use this phase to pace up & increase allocation towards enhancing financial corpus, which will help to attain goals. This phase will be the key for last phase of investing.
Distribution Phase – Also known as spending phase, this phase is signified when your earned income from the earlier two stages , is now the primary source for generating cash flow. The ability to bear volatility is typically reduced during this phase . A word of caution here – typically you should not be servicing any EMIs in this phase.
Each phase plays a vital role in one’s investing journey. Pace wisely and finish strong.
Content : Ajit Kaushal