Gentlemen, Start Your Investing Engines!

“There are only three sports: bullfighting, motor racing, and mountaineering; all the rest are merely games.”

— Ernest Hemingway

Hemingway’s inclusion of motor racing as one of only three real sports is often quoted with a sense of pride among those of us who pour our love, time and, yes, considerable financial resources toward this endeavor. 

Speaking of the latter, there’s another saying that’s common in the auto racing world, and it goes like this: 

Do you know how to make a small fortune in auto racing? You start with a big fortune. 

This apropos adage is certainly one that amateur, semi-pro and even professional auto racing team owners discover very quickly, and that’s because when it comes to a costly venture, few things add up as fast as motor racing.

Now, the reason this subject is at the forefront in my mind today is because over the weekend, Formula 1 held the United States Grand Prix at the Circuit of the Americas in Austin, Texas. I wasn’t able to attend the event, but I had several friends who did and they told me about the excitement and pageantry of this tremendous event.

Of particular note was the remarkable drive by the former F1 champion, and my favorite driver on the circuit, Fernando Alonso. After being crashed into by another driver on a restart, Alonso went into the pits for a nose and tire change, and then went right back out and worked his way through the field for what many of us think was the drive of the season.  

Here is how former F1 driver Jolyon Palmer described the remarkable Alonso: “Fernando is a driver of the steeliest determination. I remember his recovery in Baku a few years ago when he brought a hobbled McLaren back to the pits at the end of lap one, only to go back out and eventually come home in the points. This race I think was an even more spectacular recovery.”

So, now you know why Alonso is my favorite driver, as “steeliest determination” is one of the character traits I admire most in my fellow humans. 

Interestingly, my friend who attended the F1 race once made an observation about the whole racing enterprise that sparked an idea for this column. Here’s what he told me: 

“Jim, the racing business sort of seems like what you do. The team owners pour money into their people and products in pursuit of victory. And when it comes to investing, we put money into companies in pursuit of winning by growing our money.”

I thought about this for a while, and then I came to the conclusion that my friend was partially right. You see, in some ways auto racing is similar to investing, but in other ways, it’s very far from it. Let me explain.

Like auto racing, investors want to win. And like auto racing, investors have to take risks to come out with a victory.

And if you want to win in your portfolio, sometimes you have to push things along by buying high-momentum stocks and out-of-the-money call options on those stocks in pursuit of really fast gains, like the way we do in my Bullseye Stock Trader advisory service. 

Yet unlike auto racing, when we put our money into a company, our winning comes in the form of more money. 

You see, in auto racing, and particularly in the amateur and semi-pro ranks, but also largely in the professional ranks, the money you put into the venture doesn’t come back to you multiplied the way a good investment does. Sure, you might win a trophy, and it might be really fun, exhilarating and satisfying, but it’s going to cost you a whole lot of capital.

But when we invest, the trophy is the increased capital, and the bigger the gains, the bigger the trophy. So, unlike a pursuit that costs you money, investing is a pursuit that, when done properly, is going to make you a whole lot of money.

Another way to frame this for contrast is that unlike auto racing, investing doesn’t take a big fortune to make a small fortune. Instead, when you invest, you can take that small fortune and turn it into a really big fortune.

And when it comes to investing, there’s no time like the present to go out on the track and test your driving skills. 

So, gentlemen, start your engines!

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On Love and War 

“Love is like war: easy to begin but very hard to stop.”

— H. L. Mencken

Perhaps the greatest journalist, social critic and American man of letters that’s ever picked up a pen, Henry Louis “H.L.” Mencken was a veritable quote machine throughout his prolific and always-scintillating writings. If you want to discover what real political writing is, then I highly recommend the collection, “A Carnival of Buncombe.” 

Here I am with my own tattered and road-ridden copy, one of the crown jewels of my collection of Mencken works, of which I am proud to say is everything the man ever published. 

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.