31 October 2008

Family Finances & Bear Market Psychology

Investment strategy is the topic for this week. I am not going to tell you what I think you should do. Rather, I am going to share ideas about how I approach my family's investment strategy and outline some observations from the last few weeks. An interesting article where the author does offer some "to do's".


Two quick announcements.

Fit Pregnancy -- many thanks to everyone that wrote in. It's been an adjustment -- more for Monica than me. The "fun" part of being Dad is watching my wife morph into an FHM model. The challenging bit is that our daughter seems to be in a pattern of melting down around dinner time. Our photo this week shows me heading out on a walk to chill her out.

Real World Marathoning -- this week finance, next week running. If you have questions about marathon training then insert a comment this week and I will try to address next week.


Wall Street Compensation
For those of you that wonder what sort of money the folks at the top of Wall Street make -- you'll enjoy the video inside this LINK. If, like me, you pay taxes in America, then you're now paying to keep these guys in business. If you want more detail then this Bloomberg article gives specifics -- wonder how an auto worker feels about this use of taxpayer money?

There's got to be a better way. Watching from the outside, revolutions happen when the elites stray too far from the needs of the people. I sense there's going to be tremendous backlash as the economy absorbs the impact of the Great Unwinding. People will be upset and looking for the federal government to take action -- and -- we are likely to have a Congress in the mood to do just that. It is not going to be pretty.

I suspect that every rich person in America is pulling forward income and capital gains. Tax revenues are going off a cliff in 2009/2010. No matter who wins the election, we're all going to be paying a lot more in taxes. Take it from a Canadian... no free lunch!


The Great Unwinding
My main concern these days is wondering if the last 20 years were all driven by leverage. Have I lived my entire investment career with a massive tailwind of ever increasing liquidity? Have I fooled myself by seeing knowledge/experience where reality was a global ponzi scheme?

When I look through my best deals -- leverage, and ownership, plays a central role. In fact, even when the gains were "value" driven -- the fact that I was working at a Private Equity fund was a direct result of a huge increase in global liquidity.

If it was 'just leverage' then we are nowhere near the end of the Great Unwinding -- the snap back from two decades of easy money is going to be severe. Our governments are seeking to replace the capital that has been lost in the system. Perhaps the hole is too big? How does the Fed go lower than 1%?

How much further can we lever up consumers, companies, countries? I don't think very much.


The Psychology of Portfolio Tracking
How often do you track returns?

It makes a big psychological difference in times of stress (such as October 2008). Here is a data set of portfolio returns:
  • 10 yr = 17.5%;
  • 5 yr = 6.2%;
  • 3 yr = 0.0%;
  • 1 yr = -65.0%.
All of these numbers come from the same portfolio, my own. I would have saved myself a ton of energy if I'd been asleep for the last three years! I worked hard for that zero percent return, wonder if I worked smart?

Still, I'm the lucky one - I know people that will be totally wiped out in 2009.

When I compare the family's balance sheet to various equity benchmarks, I can see why folks that have been playing the market have been a bit blue. 1/3/5 year returns are negative (depending on the hour you check!) and 10 year returns are pretty flat. A decade of getting nothing. No wonder Michael Moore calls the stock market "a rich man's game".

Here is where human psychology comes into play. Three years ago, I was concerned over the risk profile of my portfolio, so I sold nearly all of my high risk exposure down. I rolled a fraction of my high risk exposure into a new venture -- which promptly shot up to a paper value of 15x cost, then tanked.

When I talk with people concerned over the current value of their 401Ks... we ask each other... did we really "have" our peak portfolio values? Were you really going to sell a few months ago when it topped out? If not then why does it hurt so bad?!

For me, the 'return' was never there. I wasn't able to take that value off the table, or hedge it, or lock-in any of the gain -- believe me, I tried. Even sold assets at a massive discounts to shift out of risky exposure.

Even when I calmly think it through, I experience a real (and irrational) sense of loss from the movement off the peak. I'm up at midnight trying to write it out of my head so I can get back to sleep...

We are all feeling shell shocked right now. At some stage, we are going to have to pull the trigger and make some investments. Just not sure in what, or when!


Timing and Asset Classes
Friends, and columnists, are starting to tell me how cheap valuations appear. Speaking from experience, when companies look really cheap, then you had better start checking if the earnings are really there. With the Federal Funds rate at 1%, people wanting to sell you companies priced at 15% yields on current earnings... that should tell you something about the earnings.

When to buy? I see savvy friends (and people like Buffett) buying in the current market (looks awesome on a two week basis). However, I know that being wrong will hurt more than being right. that's the emotional side.

The analytic side runs like this -- where I like to invest (other than core capital) is projects where I am able to increase my return through an employment, or consulting, relationship with the company. Generally, I look for a 20% return achieved through a mixture of current income and long term capital gain.

If you've ben prudent then you can take (a measure of) solace from the fact that we are all in the same boat and you've likely been hit less than others. I've also rationalised to myself that a major economic downturn is a good time to have kids -- perhaps the ultimate in being countercyclical.

When people tell me that I risk missing the boat, I just don't see it. Even if I timed the market perfectly over the last ten years, I would have been better in cash.

That combines with my sense that the Great Unwinding as a lot further to run and a concern over the deflationary effect due to simultaneous global asset bubble implosion.

Besides being right wouldn't change my life that much and being wrong would blow my daughter's college fund.


A Good Bet
If I was a young couple, or family, then I continue to believe that there will be good investment opportunities this winter in the housing market. I strongly suspect that we will see a very soft property market in early February. Figure out what makes sense now. As we approach the bottom, you will have a psychological headwind against investing.

In figuring out what type of property might make sense -- review the buy:rent equation. That should be starting to get attractive in many markets. In some places you can pick up houses for less than construction value (and possibly get the foreclosed lender to give you a mortgage).

Here is what I'd look for -- you aren't likely to be able to get everything but it will give you ideas on how to evaluate your potential purchase:
  • 50% reduction from peak pricing in 2006/2007
  • 10% under replacement value
  • mortgage payments no more than 80% of your current rental cost
  • if buying a foreclosed property then negotiate a price reduction that is a multiple of any defects you uncover with your survey
Unexpected unemployment is a possibility for many of us -- consider your income security. It probably makes sense to consider a smaller property than you may have aspired to a few years ago.


Looking Forward
All-in-all, remember that there is still a lot of good out there. It is so easy to get caught up in the negative noise being pumped out by the media. I have friends that don't own shares that are tracking the Dow hourly.

Turn it off... it's not doing you any good!

While far from a blessing, a difficult economic environment certainly makes life more simple. The core items that make Monica, and me, happy are low cost.

As for my own portfolio, I'm not really sure what to do and I can't afford to be wrong. So I'm going to take the Asian solution... wait.

Back next week,

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24 October 2008

Fit Pregnancy & Childbirth

Fit pregnancy and childbirth are the topics for this week.  The letter is likely to end up fairly long but it should make an interesting change from politics and the economy!


Couple of announcements before we kick off.

Tucson -- we have ten slots left for our Spring Camp in Tucson.  Dates are March 29th to April 5th.  Six days of training, $2,350 includes everything but your airfares.  The camp is appropriate for sub-13 hour IMers (and sub-6 hours Half IMers).  For more info drop me a line.

Over on Endurance Corner Radio you will find three new podcasts -- Greg Bennett; Going Fast in Kona; and Chris Baldwin.  If you want then you can subscribe to the podcasts through iTunes -- we are listed under Endurance Corner Radio.  Jonas Colting will be live on Monday!


Fit Pregnancy

On October 14th, Monica gave birth to our daughter Alexandra (she's the one in the photo above).  Seeing as I'm the writer in the family, I will share some observations across the last ten months.

We have all heard stories about massive weight gain during pregnancy.  I've heard stories of women gaining up to 80 pounds across their pregnancies.  Listening to these tales, many women must wonder if large amounts of baby weight are the norm.  Do I have to become huge, to have a healthy baby?  Monica's experience might be relevant to you.

Before we start with the pregnancy, I want to mention a little bit about the year before the pregnancy.  When you look at the athletes racing in Kona, or ITU Worlds, you will see that most participants are optimized for performance, rather than personal health.  In fact, I'd guess that many very fast elite athletes (male and female) would have trouble conceiving when they are peak athletic condition.  

So my first recommendation for athletes seeking to conceive is to get a medical check-up and shift the basis of your athletics from performance, to health.  That is something that Monica and I did across last winter.  Although I continued to ride my bike, my overall training stress was low enough that I had sufficient energy to devote to fatherly duties...

Monica didn't ride and focused her training on swimming, running and yoga.  She was in excellent health and physical condition.  While we were trying to conceive, she kept both the volume, and intensity, of her program.  She didn't do much fast running but she would swim fast three times per week.

Monica's main worries prior to getting pregnant: 
  • I will lose my body
  • I will lose fitness
  • I won't be able to do anything
  • I will get slow and never recover
I can relate to those concerns -- I share many of them every October and November!

The good news is you can maintain your body, your health and, most surprisingly, your fitness.  Here's how she did it.

No Zeros -- Monica did some form of physical activity every single day, for her entire pregnancy - even the day her water broke.  This performance was a lot better than Dad's record!

While our medical advice was not to commence a fitness program when you get pregnant, all our doctors said that it was OK to maintain a fitness program through pregnancy.  Monica's doc also noted that there isn't much practical knowledge about pregnancy and the endurance athlete.  

The warnings boiled down to:
  • Don't let your body overheat;
  • Stay well hydrated;
  • Don't get out of breath (steady effort, or lower); and
  • Listen to your body.
Monica read the blogs of athletic moms like Bree Wee and Paula Radcliffe -- seeking to learn from their experience.  She also consulted with coaches of elite female triathletes to learn from their experience.  Something that came out of that research is the risk of stress fractures that result when moms come back too quickly.  We received a lot of warnings about late term and postpartum running.

While most people talk about trimesters, looking from the outside, I noticed shifts closer to ten week blocks within M's 40-week pregnancy.

First ten weeks -- hormonal changes, mainly impacted mood and appetite.  Monica was lucky in that her cravings were fresh fruit (rather than sugar/starch) related.

Second ten weeks -- feeling much better, moderated volume and intensity with attitude of baby-comes-first.

Third ten weeks -- pregnancy starts to show, pubic bone discomfort at 26 weeks, stopped running at 30 weeks, shifted to the elliptical trainer 2x per week.

Final ten weeks -- months of high frequency swimming left her very economical in the water, some high volume swim weeks, hiking started around 34 weeks, elliptical reduced to 1x per week.

Here's a great stat... total swim distance across the pregnancy... 908,600 meters.   Average weekly volume was 14 hours and 45 minutes (includes yoga & cross training but not mellow walks with me).  That average volume was down from 19-23 hours per week before conception.

The most surprising thing for me was that across her third trimester, Monica had returned to a level of aerobic swim economy that was on-par with where she was preconception.

To sum up Monica's focus:
  • Pre-pregnancy -- health, not race fitness
  • During pregnancy -- baby comes first, no zeros
The biggest mental challenges Monica faced were:
  • not stopping; 
  • coping with weight gain; 
  • coping with her body changing; and
  • coping with peer group response.
There will be days where you feel like everyone wants you to get huge, slow down and be uncomfortable.  Those feelings are normal and it helps to know that all pregnant ladies are dealing with them.

If she had to give you one piece of advice with your pregnancy then she would encourage you to remain active, moderately, every day.  Also remember that if you plan on breast feeding you'll burn off your baby weight safely and gradually.


The birth experience was intense and nothing like either of us expected.  We went to "baby school" this summer but nothing can prepare you for the real thing.  

All you experienced moms out there... you certainly downplayed the extreme nature of childbirth!

6:45pm Sunday (Zero Hour) -- water breaks, contractions start shortly thereafter

+6 hrs -- at the hospital, told cervix is 1-2 cm dilated

+15 hrs -- Monica's OB/Gyn gives an exam and notes that cervix is 1 cm dilated -- previous exam was incorrect; drug inserted to help cervix along

+18 hrs -- full blown labour gets going, strong contractions happening up to 2:30 min apart

+23 hrs -- another exam; disappointing news; uterus is ahead of cervix; only 2cm dilated; facing another 12 hrs of labour M opts for epidural

+24 hrs -- epidural kicks in with three hours of pain relief and relative comfort

+29 hrs -- pain relief gone; M feeling pretty strung out and ragged; doctor recommends sleeping pill to enable M to sleep; doesn't force it but strongly recommends

+30 hrs -- M waives off sleeping pill; gets anaesthetist to refresh the epidural;

+31 hrs -- another three hours of pain relief; a couple of short naps; makes a huge difference

+34 hrs -- pain relief wanes; good news that M is 8.5 cm dilated (one needs to get to 10 cm) 

+35 hrs -- pretty extreme pain through transition; M starts pushing; has to pause because she nearly pushes the baby out before the doctor can get to the room

+35:30 hrs -- childbirth!

Things that surprised us:

The extreme amounts of pain -- likely magnified by duration of labour and lack of sleep.   Picture the most despair your have ever seen in an athlete... this didn't even come close!  I'm guessing that you'd only see close having to watch young people die or see people broken via torture.  It's a good thing that babies are so cute!

The main thing that surprised me (M didn't see) was the large amount of blood that came out after the birth -- between the placenta and the blood, there was a bucket full of post-baby-bits. Didn't freak me out but it certainly got my attention.

Tips for the guys:

Being in the room, and supportive, provides a HUGE opportunity to strengthen your marriage. In life, we only get a few opportunities to demonstrate character. Child-birth is a total-body experience for your wife, being able to share that can create a deep bond. She will always remember if you were there for her.

Besides, after you watch, you'll spend the rest of your life grateful that your wife is handling the birthing part of the relationship. Blew my mind!

Back next week,

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17 October 2008

Ethics, Incentives and Enforcement

I suppose a lot of us are talking about Wall Street, greed, CEOs, bankers, bonuses... much of the discussion that I read, and hear, centers around a lack of ethics on the part of people in positions of leadership. With crisis comes opportunity. We have a unique opportunity to improve our financial system.

I am going to write about business but this could just as easily be a piece on doping.


A lot of poor decisions are rationalized by a belief that the action was justified by the actor being a good person. Given that we each have to live with ourselves, it is reasonable to believe that nearly every poor decision is followed by a post-fact rationalization.

Once we start living a lie, even a small one, we can find ourselves on a slippery slope that eventually leads to moral ambiguity. Far easier to stay a mile away from "the line" then risk the public humiliation that comes from high profile ethical lapses.

During times like these, one can easily see the costs from ethical lapses but it important to remember that our current situation started with a series of small decisions where the benefits appeared to out-weigh the costs. Step by step, the situation progressed until we have a crisis caused by lack of enforcement, excessive leverage and skewed incentives.

So now society, as a whole, pays the price. People are upset and human nature will seek vengeance. I suppose this article is my attempt to help channel that vengeance towards productive progress.

I like to remind myself that we win (individually, and collectively) by maintaining high ethics. Over a lifetime, there is much financial gain to be had by being reliable and extremely trustworthy. Greater than finances alone, there is much love and friendship to be received. There can appear to be short term trade-offs but there is no long-term cost to avoiding false gods (easy money, sex, alcohol, pride, false performance...).

As humans, we need to be wary of situations that screw up our ability to think clearly:
  • weak peer group (social pressure)
  • intoxication (drugs & alcohol)
  • fear or anger (emotional overload triggering automatic response)
  • all-or-nothing outcomes (perception of nothing to lose)
As citizens (coaches, managers, leaders), we also need to consider the incentives that we are putting in place. Are we creating systems that reward cheating? When we experience a lot of undesirable outcomes then it is more effective to change the incentive structure, rather than punish a never ending line of cheaters.

It's for this reason that you'll never get the drugs out of a big money sport, until the money starts to leave because of the drugs. The money is the incentive and sport rewards performance. Speaking from experience, Investment Banking faces a similar challenge.

It is also why draconian penalties don't work all that well to clean up a corrupt culture. The people on the inside have spent years justifying their actions and likely see the rules as the problem. You don't need a code of silence to enforce a corrupt culture because human nature does the enforcement for you. By increasing the all-or-nothing nature of the outcome, massive penalties can make it more difficult, not less, to break the chain.

To really change a dysfunctional culture, one needs to change the incentives.

So what were the incentives that appear to have created our financial crisis:

Top of my list is leverage -- we had plenty of warning that allowing companies, and investment vehicles, massive amounts of debt was systemically risky. We tolerated laws and investment structures that created a massive shadow banking system. LTCM happened about ten years ago. However, we didn't recognize the need to change back in 1998. You'd have be be a fool not to see it now.

The regulations are going to come. If your livelihood, or business model, depends on plentiful leverage then you had better start thinking about your back-up plan. Industries that rely on easy leverage are going to be decimated. I wouldn't be surprised to see laws making hedgefunds illegal. There is going to be coordinated global re-regulation.

Once you reduce the leverage in a system, you immediately reduce the profits available from gaming the system.

I also suspect that we will see laws banning many unregulated financial instruments as well as statutory limits on personal and corporate leverage.

Next is lack of transparency and disclosure. The act of telling the whole world (or at least your board of directors, bankers, employees and shareholders) what you are doing can help clear the mind. Disclosure needs to be compelled because human nature works to keep most of us pretty quiet in group situations.

Compelling disclosure can protect highly motivated people from themselves. Make it a crime (punishable by fine) for a company to have off balance sheet vehicles. If you are not willing to hold an asset on your main balance sheet... then should you be holding it at all?

In the UK, it is a crime (punishable by fine) not to share conflict of interest information with fellow directors. The law goes even further in that one needs to share the conflicts of other directors, if one has knowledge. I suspect that the US has similar laws on the books. So I don't think that a bunch of new laws are required. Rather, I think that consistent application of a straightforward code of conduct is required.

Next is enforcement. How much money does a white collar crime need to involve before there is a legal obligation to call the cops? I asked that question the other day and a lawyer couldn't tell me. A manager could misallocate hundreds of thousands of dollars and there isn't any obligation to call the police. I was amazed.

There is too much judgement given to directors in how they handle ethical issues. The upper echelon of any industry (or pro sport) is a club, the key players know each other and many outsiders are keen to get a seat at the table. If society has a problem with the culture of that club then we need to provide incentives for insiders to clean it up.

Which brings me to public humiliation, the single best deterrent available. While it might be fun to "win" -- letting down our peers and being disgraced... human nature sees that as HIGHLY unattractive. Elites pay attention when those around them are caught in ethical violations. Imagine how Eliot Spitzer's kids felt -- one really needs to be drunk on hubris not to think through how that situation had to end up.


Forgiveness and rehabilitation -- I'm not from the ban-them-for-life school of ethical punishment. My preference is to disclose; criminally convict (where appropriate); fine; ban for a reasonable period; and log the information on the public record.

Coming back to where we started this article, good people can make bad decisions and a lot of good can flow from a crisis that resulted from ethical lapses. Some examples:

Campaign finance reform -- McCain's actions on reform appeared to flow from the Savings & Loan crisis. Regardless of one's politics, you have to admit that John McCain has achieved tremendous good for his country. Did you watch the video? They should open each session of Congress by having the legislature watch the Obama campaign's "documentary". The 13 minute clip scared the crap out of me and I'm not even a politician.

Cycling reform -- David Millar (our photo this week) has become an advocate for cycling reform. He was caught, he did his time, his actions are on the public record -- now he appears driven to change the direction of his sport.

There are many more examples of good people getting caught (or not caught), coming clean then becoming a positive force for change (via personal foundations or crusades).

I suspect there are many CEOs and bankers that want to do the right thing for themselves, and their country. What we need to do is reduce the leverage they have available; limit their ability to sell unregulated products; enforce existing regulations; and publicly pursue/ban those that choose the break the rules.


Finally a few specific items that have been swirling in my head.

Mark to market accounting waivers -- John Mauldin is calling for the government to waive the obligation for companies to mark asset values to market. He is making his case by selecting certain assets that are clearly trading below long term value. We are in this mess because of a culture of non-disclosure, hiding bad assets and moral hazard from companies not having to live with the results of their decisions.

Advocating changing the rules, hiding the problem, giving banks time... that is how we got into the mess in the first place. John is a great writer, I read his letter every week, he has most things right, but I think he's got this one wrong. If you don't want to mark assets to market then don't buy those assets.

Compel full, and open, disclosure to create trust. If banks are allowed to hide their problems then we will never get the interbank market going again. Get everything out in the open and, where necessary, grant short-term waivers for capital adequacy ratios.

Government investments in bank equity -- our governments are shortly going to guaranty all our banking deposits as well as invest massive sums of capital into the balance sheets of our banks. I was amazed when Secretary Paulson said that the government wasn't going to seek board representation, or other rights. Would Goldman Sachs invest $700 billion without board representation, veto rights and disclosure requirements?

I suspect that the government is going to get taken to the cleaners on its investments. I couldn't invest $700,000 effectively if I had to rush -- $700 billion? It is likely to be a mess either way.

The money is the incentive, we must drive change at the same time as investment. As an investor, your power is strongest the moment before you invest. Once you've got a couple billion in a company, human nature creates massive inertia. This is a unique opportunity. There will be zero change if not driven by the governments that are saving these institutions. I take a lot more comfort in the British approach, so far.


Next week, I'm going to change direction and talk about Fit Pregnancy! Monica says that she really appreciated reading articles that athletic women wrote about their baby experiences. She's not a writer (but she makes really nice handmade cards...) so you'll have to read the story second-hand from Papa G.

Happy Fall,

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10 October 2008

Personal Freedom

A good friend sent me a link to an interview with Andrew Bacevich.  The interview provides interesting points of view on patriotism, foreign policy, projection of power and the central values of American society.  It takes an hour to get through and it was a useful way to spend a Sunday morning. 

The interview is, nominally, with reference to Bacevich's book, The Limits of Power. The author is described as a conservative historian but many of his points are often made (far less effectively) by my liberal friends.  The link was sent to me by a veteran who said that he watched with tears in his eyes because someone had finally put into words what he had felt for years.

An example is his position on "not war" as opposed to peace -- my quote, not his.  It's the first time, I have heard someone talk about the Iraq war in a more nuanced point of view.  Generally, we are presented with binary choices (in/out; win/lose; victory/defeat).  Bacevich goes deeper and examines the impact of a full commitment in one area which limits our ability to commit in other areas.  

As an investor, I look at the opportunity cost of a position.  As a historian, Bacevich does the same thing with respect to the projection of power and the allocation of national capital.  Like many strengths, wealth/force/power/fitness may be most useful when applied sparingly.

Inside the interview you will find one person's explanation of Imperialism.  As a Canadian, I haven't given much thought to Imperialism, we are a proud, but realistic nation up there.  

Bacevich's advice to the US Leadership... step back from worrying about who's right or wrong -- consider whether our current approach is serving our long term goals... it's something that I try to do in my own life.  He's basically challenging us to consider where we are fooling ourselves.

His view on an effective approach to terrorism made sense to me -- certainly in terms of return on investment as well as allocation of effort.  The very human tendency towards revenge, striking out when fearful and consistency bias -- it is interesting to consider these traits impact our view on what is appropriate action.

Bill Moyers interviewing style is a little different than Bill O'Reilly... but it's still good television.  :-)  Fox news hasn't managed to get through my media filter but I did read a transcript of the Barney Frank interview this past week.  Don't think I am missing much.


What's all this have to do with personal freedom.  Well, when I listened to the interview, I was left with the question... "what the heck can I do?"  How can the action of one guy, still waiting for his Green Card, have an impact on the larger world.  Well... I could write an article that is read by a few thousand citizen-athletes and get you thinking about the same issues...

Actually, that wasn't quite the first thought I had.  I am increasingly concerned that 2009 will see me violate my first rule of personal finance -- never spend more than I earn.  All my forecasts are pointing towards deficit spending and action is required (now) to avoid difficulties (later).

A government might be able to tolerate deficit spending (after all, it's not their money, it's yours and mine) but I know that, personally, if I run large deficits then I am going to have a very difficult time in my 50s and 60s.  I also know that it part of the human condition is to blame external sources for the reality of our current life situation.  It's far too easy to sit around blaming somebody else for where we find ourselves.

Bacevich kept coming back to the difference between what is peripherally essential and what is centrally essential.  Moyers asked him what he meant (more than once) and Bacevich would only say that he felt the preamble to the Constitution said it best.  Not being an expert in US civics, I had to look it up...
We the people of the United States, in order to form a more perfect union, establish justice, ensure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessing of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.
The people that wrote that were pretty smart and the history professor managed to get me to read a good chunk of the constitution -- if he's your teacher at Boston University then you are lucky student.

Domestic harmony; personal security; common welfare and personal freedom for ourselves and our kids.  That's a great starting point for what's essential.  

When I read the preamble, initially, I wondered why it is in my interest to work towards the common welfare?  The reason is that revolutions happen when a society loses sight of the needs of its people.  I suspect that many of my friends (and fellow citizens) are going to be seriously upset when they experience the impact of global deleveraging and realize that they can't borrow themselves out of trouble.  

What to do?  In order to protect what is centrally essential in my life, I need to consider what I can change at the periphery.  Frequent readers will know that I place a great value on my personal freedoms -- freedom of occupation; freedom of location and freedom of time.  

When I really think about it, freedom of location is more expensive than essential.  So I'm going to boot that from 2009.  Besides, extensive travel isn't a very effective use of natural resources and there is no shortage of things to explore locally.

I've also been brainstorming a series of "what ifs" and considering my options to generate income (and return on investment).  To help create new opportunities, I also need to reduce time spent on low return areas.  I will write more about that as my ideas come together.


I'm going to end on a positive note as I think it is important for us to remember that markets don't decline forever and, notwithstanding a buzz saw rolling through our economies, life remains good.  My cats don't care about the performance of my personal portfolio -- their purring appears independent of my mark-to-market NAV.

September is the best month of the year in Boulder (or my hometown of Vancouver, for that matter).  Cool evenings, plenty of sunshine.  Here in the Front Range we start to get the beauty of fall without the chill of early winter.  I have been taking advantage of the weather to bag a few local peaks.

The game that I've been playing is that I can only climb a mountain if I can make it 100% human powered from my front door.  I've managed Mt Sanitas (6,863 ft) and Bear Peak (8,461 ft).  The photo above is the view to Boulder from Bear Peak.  Combining the letters of the last two weeks, I am focusing my fitness on what is essential -- old school endurance trumps race performance.

While September is the best time of year, October is my favorite month.  Most years, I am tired in September and that impacts my mood.  I have probably had the least number of Zeros (days without training) in September 2008 than any previous year.  

As an interesting aside, Monica has not had a single zero in her pregnancy.  I am negotiating blogging rights to the story of her Fit Pregnancy -- I learned a lot from watching her.

Back to October... the combination of raking leaves and Halloween makes for a fun time.  Leaves and trick-or-treaters fall into my area of family responsibilities.

A three dollar pumpkin and a few bucks worth of candy is all it takes to make a bunch of kids happy.

Central, versus peripheral, essentials.

Back next week,


03 October 2008

Old School Endurance

This week, I am going to have some fun and write about a topic dear to my heart -- Old School Endurance.  Not quite "Old Time Hockey" but Paul Newman's passing has been on my mind.  Watching Slapshot is a rite of passage for a lot of my Canadian pals.

Management and communication tips can wait for another week -- if you are like me then you could be a little burnt out on reading about the dire state of the global economy.  There is going to be plenty of time for working through the aftermath.


Two quick announcements before we get started:

I was looking for photos on the web this past weekend and discovered my interview on Endurance Planet -- scroll down the page, I am July 1st.  13 minutes long with some ideas about performance and coaching that might interest.  

Bobby McGee, world-class running and triathlon coach, is featured on Endurance Corner Radio.  Greg Bennett is coming in two weeks.  Send questions to Justin Daerr.


This past week, I was running (in the rain, wearing a cotton t-shirt... Chuckie you would have been proud).  I was rolling along thinking about this article and Ironman Hawaii in particular.  

The legend of Ironman is fairly well known... a few military guys sitting around trying to dream up the wildest event they can consider... Waikiki rough water swim, ride around Ohau, Honolulu marathon... something like that.  For me, that's Old School Endurance.

Sit around with your pals, dream up something off-the-charts then figure out how to do it.  Outside of Ultraman, there aren't a lot of triathlon events that fit that mould any more.  You are most likely to discover old school endurance on events like the Triple Bypass, Leadville 100, Hard Rock 100 or by bumping into an ultra-amigo on the Continental Divide trail.

Ironman has gained a lot over the years, lives have been changed for the better, and many cottage industries have popped up -- pretty much as a direct result of that original dare.

As a private equity guy, I think the sale this year could mark the high water mark for Ironman, but not necessarily for the WTC, as a company.  From the outside looking in, I can see clear opportunities for further profit enhancement:
  • The launch of the 70.3 series was a good move, when faced with an aging demographic as well as a need to attract younger customers.
  • The ability to bring race management in-house via acquisition, or competition.
  • Superior licensing arrangements -- to me, there has always been a disconnect between the marketing strategy (mass market) and the people that actually do the races (niche market).  Perhaps the most lucrative customers are the one's watching the NBC broadcast?  I suspect that there is a lot more that can be done with those of us that are actually doing the races.
Ramp things up and either fold into a larger entertainment group, or sell a piece of Ironman through the public markets.  I keep coming back to Planet Hollywood in my mind, though -- not a great outcome for the IPO shareholders but a great franchise name.  I'd be wary if they take m-dot public.  Of course, history tells us that select buyers will pay a large premium to own world-class brands.  My concern would be the risk of declining cash flow.

Why sell?  Long term capital gains tax rates are likely heading up; and a vendor wants to leave enough in it for the next buyer to generate a fair return.  The deal made sense to me from both sides. 

How to maintain growth of an expensive and time consuming hobby in the face of a declining economic environment?  The 70.3 series is a good strategic move.  It will be interesting to see how Ironman handles a significant economic slowdown within its demographic -- the Ironman target market has had a sustained bull run -- we should get Dan Empfield to share his thoughts.  Perhaps he'll write something about his -- SlowTwitch reflects the pulse of the sport and Dan has a historical perspective that few can match.

Back to Old School Endurance.  Before I ever did a swim set or bike repeat, I was a weightlifter, hiker, and (very average) sport climber.  Like many of us, I got a kick out of dreaming up new projects -- my progression to mountaineering was the ultimate in Old School.  Find a volcano somewhere in Asia -- use a three-, or four-, day weekend to fly-in, summit and fly-out.  I would sleep rough and listen to the jungle.

These days a ten-mile climb wears me out... still it is September.  A guy's got to rest some time!

Some of you might recognize the guy in the photo below -- this summer during Epic Camp Italy, I used my easy day, to ride past the turn off for the Messner Museum in the Dolomites.  Everest, solo, no oxygen, no one else on the mountain.  Pretty Old School! 

Endurance has a number of different qualities -- all of which are important to consider if you want to (ultimately) race well.  Each of these attributes is linked with the others and a breakdown in one area ends our ability "to endure".

Mental Endurance -- the ability to keep moving forward until the objective is met.  Chip away, bit by bit, day after day.  The downside is that people that score high here are the sorts the die in the mountains, or spend years pounding away at an area where they have little potential.  I score reasonably well here, so need to balance persistence (good thing) with consistency bias (risky thing).

Working on our physical endurance benefits our mental endurance in many ways. 

Anger management -- I experience a lot of background anger in the world, specifically what drives a lot of ultraendurance athletes to get so far away from home, from the 'real' world, from everyone else.  

To truly endure, we need to accept the way things are.  Somehow, years of physical endurance training managed to work-out a lot of situations, histories, and people that used to upset me.

Humility -- This could be the ingredient that creates the later life peak for the ultra-endurance athlete.  It takes most of us a many years to have enough setbacks to gain the humility required to stop repeating our mistakes.  The only sure fire way to increase my humility is wait around until an unexpected setback reminds me that I don't have all the answers.

Fear -- for me, fear is what leads anger.  I struggle to see the emotional roots of my fears... ...I only feel the anger.  I spend a lot of time searching for the fear that lies beneath my emotions.  My main fear has to do with disappointing people that I respect. 

Physical Endurance -- just like VO2 max, many people appear to be gifted with bodies that are created to tolerate volume well.  Expeditions are a great example of this trait.  When I was in peak mountaineering shape, I could carry/haul 130 lbs of gear daily, at altitude, for a week -- good for me, "easy" for a sherpa!  I could do a tremendous amount of low intensity work then handle hours of tempo on a final "summit day".  

What I couldn't do was swim, bike or run quickly -- let alone put them all together.  Endurance is an essential component of fitness but it is only a component.  At my mountaineering peak, I was a mediocre athlete.  But my solid endurance base, enabled surprisingly rapid progress when I started converting endurance to race fitness.

Most adult triathletes come to our sport with a focus on race fitness prior to the creation of an endurance (and strength) platform.  This is the piece of the performance puzzle that is missed by intensity-driven programs -- most likely because they are created by life-long athletes that haven't experienced an absence of endurance.

Metabolic Endurance -- I don't read a lot about this in the literature but I see it with people that are able to survive when placed in extreme situations -- as well as athletes that are (ultimately) able to go 'fast' in an Ironman.  Physical endurance is the ability to walk from Boulder to Vail.  Metabolic endurance is the ability to do it on minimal food and water.  Some coaches/athletes seek to train this through (effectively) starvation.  

Perhaps a future article will talk about self-starvation, and self-denial, in an attempt to exert control within a mind that feels out of control.  It's a complex psychological issue that is far easier to observe than treat.  I have had my greatest success with simple acceptance and affection for (fellow) crazies.

Constitutional Endurance -- relates to how fast we recover, our immune systems and what we generally call our "constitution".  We see this a lot at Epic Camp... there is normally one, or two, campers that manage to get stronger as the camp progresses.  Some individuals can simply take more than others -- and keep bouncing back.  In my mid-30s I could get away with extreme training -- at least I thought I was getting away with it!

Molina once managed the first week of an Epic Camp on nothing but liquid calories.  He'd had the trots for a week leading into the camp!  He didn't mention this to anyone lest we rip him to shreds -- Epic Campers can behave a bit like hyenas when they get fatigued... 

Scott's not the only example of World Champions that score off-the-charts for Old School Endurance -- Tom Dolan is a guy that springs to mind.  Talent, motivation, and the capacity to out-train any swimmer of his generation.

Now you might think that Ironman Hawaii is the ultimate test of endurance -- we could be fooling ourselves.  The photo above is how Amundsen chose to spend his summer when he raced Scott to the South Pole.  Great story.  Guts will only get you so far without preparation.

The real test of Ironman is the months, and years, of daily training that are required to put together a fast race.  That is the true test and probably why we see such an emotional release at the finish line -- so much went into that one day.


Some suggested reading to get your Old School mojo working...
Endurance, Shackleton (pictured above, likely the greatest demonstration of human endurance, ever -- gotta love the frosty beard, Monica won't let me grow one...)

Many enjoy the romanticism of endurance-Samurai that go down in flames -- the problem with that approach is you can't write up your adventures if you are dead on the mountain.  

Being a success oriented guy, I like the stories that centre around getting the team home in one piece.

Molina's 50 in 2010 -- it's going to take me a while to build back up but I'm looking forward to Going' Old School one more time with my good buddy.  We'll need to come up with something special.

Good luck to everyone racing Kona -- when it gets tough remember that it's just one day!

Back next week,

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