Do you also see parallels with investing here? The asset portfolio contains several asset classes and covers different regions. Let’s liken it to different cars on different tracks. Only the optimal combination of asset classes has a chance of delivering stable, positive returns during changing market cycles.
During the season, an F1 team can modify its base car. The portfolio manager periodically adjusts the portfolio to optimise risk and return. The underlying asset allocation remains but is subject to short-term, tactical adjustments as required. Dramatic changes are not desirable in short-term fluctuations.
A pit stop means completing a large number of tasks in a very short period of time. This is where races are often won or lost. Losses (or potential losses) can force us to make rash decisions, such as selling out at the bottom of a decline or reducing risk exposure despite ample liquidity. However, such decisions may not be in our best interest. An F1 team will never pull a car off the track when fearing a loss. In a critical situation, it is advised by the best experts.
Every year, F1 teams design a new car. Most of the time, they build on designs from previous years. But the aim is to reduce the gap between the drivers and make the race more exciting. And so it happens that Mercedes, which dominated motorsport, is no longer at the top. Aston Martin, which was seventh in 2022, is now third. In a period of underperformance, Mercedes cannot overreact.
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Drastic changes to portfolios or the investment team will not overcome a turbulent period, quite the opposite. Sometimes it is more effective to limit activity or stick to a plan than to react spontaneously. Responding calmly in a stressful situation can ensure high performance. The goal must be clear: to deliver strong and sustainable returns over the long term.
