The 4th round of the 2022 Formula One (F1) is the Emilia Romagna Grand Prix (formerly San Marino GP), held at the Autodromo Enzo e Dino Ferrari in Imola, Italy, better known as the Imola Circuit. The track is named after the founder of Ferrari, Enzo Ferrari, and his son, Alfredo "Dino" Ferrari. As of April 26, 2022, Ferrari (RACE) stock has been the top holding in Christmas Corp's clients portfolio since 2016.
Imola track is also known as the circuit where three-time F1 champion, Ayrton Senna, had a fatal accident that ended his life on May 1, 1994 at the Tamburello corner during the 7th lap. It was a sad weekend weekend in Imola. Just a day before Senna's accident, another driver, Roland Ratzenberger was killed in a crash during the qualifying round.
Curve and Volatility
Some aspects of F1 racing seem to be similar with aspects of managing an investment portfolio.
In a 50-year period ending December 2021, a $100 invested in the U.S. stock market would have become $19,243, producing a 11.09% compound annual return. In a smooth line, it looks like this:
The graph reminds me of NASCAR tracks that are usually in an oval shape, and cars only ever turn left. Anyone in this world —especially an investor— knows that a smooth trip does not exist. Instead, the line in real life looks more like this:
All F1 tracks contain both straight and curved lines, and F1 cars can turn in either direction. Racing fast in a straight line is all about power. But cornering quickly is a different game. Cornering is close to an art form. It requires balance, the right level of downforce, and a driver’s talent.
What can We Learn from F1?
F1 racing is not only about car performance. It is about teamwork, planning, skills, and decision making.
Technical know-how. The engineering team makes sure the car is legal, fast, safe and reliable. They also devise a plan and choose a strategy needed to win the next race.
Strategy. It includes knowing the pit stop strategy, refuel and changing tires. (click here to read an example of F1 strategy and calculation)
Drivers’ skill and endurance. It is at the corners or curvy lines that a driver usually overtakes another driver while overcoming a huge amount of G-force. Here you can watch the 7-time champion Michael Schumacher’s cornering and overtaking skills.
Managing an investment portfolio needs a strong teamwork to conduct the research and testing, planning, and executing. Many times, a fast but calculated decision making is necessary, because business and economic challenges happen all the time.
There is no way that the stock market goes up forever. There are curves (volatility) along the way. There is also “G-force” (pressure) that portfolio managers receive during volatile periods. But in investment, volatility is not the enemy, it is an opportunity. An alpha-generating portfolio manager performs not only during bull markets, but also during hard times and volatility.
Sometimes, we at Christmas Corp don't get it right immediately in investment decisions, and as always, our past performance is no guarantee of future results. But one thing for sure, since our inception, we have overtaken the stock market many times!
— Update on Imola 2022:
Ferrari was beaten in its hometown. Red Bull Racing RBPT took 1st (Max Verstappen) and 2nd (Sergio Perez) place. Red Bull is currently in 2nd place for constructor team standings, right under Ferrari.
