Sharemarket Theory for Sailors ©
My dear chap,
Now given that owning a sailboat is about as financially reckless as one can get, it follows that sailors, though curiously wealthy are financial nincompoops under the surface. It is therefore in the interests of the sport's survival that I contribute some wisdom on the topic of portfolio theory in parlance easy for sailors to understand: -
So imagine, if you can, that a yacht race starts with all the yachts hitting the line right on the 'gun' close hauled on starboard. Gradually the yellow boat in the middle pulls ahead and you notice the crew have trimmed the sails better. That's an opportunity to back management - buy yellow! Shortly later, the whole fleet heads 5 degrees as the wind goes left. That's gives an advantage to the left hand boat, but it's too late to buy 'red' - the shift has already happened. And equally its to late to sell 'green', in the left, - they've already lost and all you are doing is locking in the loss. But if 'green' tacks while the rest of the fleet hold on in anticipation of the breeze backing left even more, then there is a chance that 'green' is now cheap if the wind reverts to its original direction.
Therein is the essential dilemma confronting both sailors and investors; - knowing whether a 'shift' is permanent or temporary.
You back green just as everyone else has given them up for dead. You are banking on the wind reverting right and green tacking back to port to cross ahead of the entire fleet.
But instead, the wind continues to go left? Green is hopelessly behind having sailed far away from a permanent header - go back to the marina, wait for next week? But in life the race never stops. Up at the front, 'red' is well into the progressive left shift and well ahead of yellow. You're chuffed at your star performer, (your had a secret 'flutter' on red), when suddenly yellow tacks and shiver your timbers (and margin lending account) they are on the lay line while 'red' is sailing ever onward greedily basking in being left hand boat in a permanent left shift (and forgetting to keep a watch on both the economy and the opposition - they are off buying a corporate jet!). Luckily you also had a little wager on yellow as a mid-fleet 'hedge' and suddenly its outperforming 'red', your best pick.
As the breeze starts to die across the course you pride yourself that notwithstanding your best pick is being upstaged by your hedge, you are first and second. But what's this? In the lighter winds the tidal flow is taking its toll and Roger you senseless if 'green' hasn't emerged ahead at the first mark having hugged the shallows near the headland - if only you hadn't sold!
On the run, one of the bigger boats has come from behind and casts a wind shadow that negates all the hard work of the 'small caps' trimming and picking the wind up the beat, and as it glides majestically through the fleet you abandon the 'colours' and opt instead for sheer size - always a fair bet - until, in the fallen tide, it runs aground on Arthur Andersen sandbank near the bottom mark.
Cutting your losses, but determined to eclipse the humiliation you launch yourself holus bolus onto 'green' whose sheer audacity has made a lasting impression on you.
You preen as green again heads far inshore to escape the tidal stream, but only to sweat in horror as the tide changes and in a dying breeze red and yellow's sails fall limp but are swept toward the mark in the now-favourable tidal stream.
By the rounding it is a two boat race, yellow, who has done nothing fancy, and red who has gone form hero to zero and back. With your now-diminished wager, you back red to 'pull it off' and are cautiously optimistic as they run a slightly 'hotter' angle toward a gently filling breeze while yellow hold deep waiting for the breeze to come to them.
Red are looking famous and you are basking in the admiration of Upton-Smyth's nieces when the unthinkable happens - red has put themselves dead upwind from the finish while yellow have held steadfastly on lay line to the pin. Yellow are going to cross ahead of red who is still two light air gibes from finishing!
So basically its all there; - wind shifts are no more predictable than price movements, the tide is central bank policy (never in equilibrium but always aiming for it), the bottom of the sea is errant auditors, the helmsman is the managing director, the trimmers are 'line' management while the bowman is chairman of the 'bored'. Yachts are companies (or the shares in them) as distinct to the buoys which, like cash deposits, never actually go anywhere). But most importantly, the finish line is your wife and Upton-Smyth's nieces are the stock brokers!
So there you have it, as much as everyone will mock you for having a 'yellow streak', your wife will adore you for it - and she will be there long after Upton-Smyth's nieces have abandoned you for the next crystal ball gazer.
Now on another matter - you'll be pleased to know the whole cunnalinghi affair has blown over so to speak. Of course I'd like to say it was down to my Shakespeareanesquue skills in the latest edition but truth be known a checkout filly put the whole thing to bed when she related to Upton-Smyth's good lady that cunnalinghi left a rather unpleasant taste. Thankfully the women's auxiliary went straight back to rewriting the Beijing welcome banquet menu on a Chinese theme. (They still believe cunnalinghi to be Spanish root vegetable - from down near the bottom). Committee most impressed though, with my grasp on meteorology and dynamic fluids and they've created a coaching/mentorship spot with the British Olympic squad. In my own interests actually as some I've selected put in an awfully poor showing at last week's selection regatta - young Upton-Smyth if I can be perfectly blunt!
I fear that in coaching like the sharemarket, history is doomed to repeat!
Truly truly,
Sir Walter Bard-Arse III
Magazine Editor
Chairman of House
Chairman of Rules
British Olympic Selector RYA
British Olympics Coach
Royal Mega Club and Sailing
Cowes, England. ©
04/02/08
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