I am an keen cyclist and enjoy watching the Tour de France each year. I know how hard it is to go uphill in the UK, and I find it staggering that the top riders can race up mountains.
I was watching Team Sky get off to a good start in their goal to put Chris Froome in the yellow jersey in Paris, and started thinking about the team director Sir Dave Brailsford’s ideas on ‘marginal gains.’ The theory goes that small modifications and improvements add up to small gains, and a number of small gains mean that you have an advantage. This led to Olympic Cycling gold medals for the UK and two British riders winning the Tour de France, which would have been unthinkable a decade ago.
Sir Dave and his team have gone to the lengths of having a team chef prepare all the team’s meals to optimise nutrition instead of eating in the tour sponsored hotels, taking each riders bedding from stage to stage to ensure that they have a good nights sleep and non-slip matting laid out so the cyclists wouldn’t slip in their custom-made carbon-fibre soled shoes. These and many other small improvements have been made to the whole experience of being a Team Sky rider, in an effort to try and find the marginal gains that will lead to his team being on top of the podium. At first, Team Sky’s ideas were ridiculed by the established teams that adopted the tried and tested methods, that is until Sky started winning regularly….
We invest a lot of our client’s money with Dimensional Fund Advisors (DFA). The firm have a deep and long-standing relationship with academia, especially the world renowned University of Chicago. Although DFA invest on a passive basis, their investment committee and leading academics (many of them Nobel Prize winners) are constantly looking for the sources of investment returns. These dimensions of returns are DFA’s marginal gains in the investment world. They then incorporate these ideas into the investment funds that our clients own in their portfolios.
DFA also make marginal gains by allowing their fund managers to be patient when trading in the stock market. DFA fund managers do not have to pursue a specific stock or trade at a specific time. They can concentrate on getting the best price. Being patient in the market means DFA is better placed to achieve a better price. Other fund managers do not take the same approach as they have urgency, which affects the price. This approach allows Dimensional to minimise the costs of trading.
With investing it is often the little things; done consistently and often that add up to a winning investment strategy, just like the marginal gains do in cycling.