Planning strategies in sports have been fairly stagnate over the last few decades; often still relying on outdated Soviet-based models. In the search for fresh ideas, more and more coaches are looking to realms outside of sport for inspiration, be it from the military, business, or finance.
One idea that keeps popping up is the barbell strategy put forward by author, options trader, and risk analyst Nassim Nicholas Taleb. What started as an investment strategy has taken on a life of its own in the world of sports, as has been featured this week on Steve Magness’s podcast, in numerouse training articles, and even my own work in the past.
Anytime we take ideas from another domain we have to understand the context it was derived from and the context we want to apply it to. The more I learn about the barbell strategy, the more I see that these contexts just don’t match up.
What is the barbell strategy?
The barbell strategy was outlined by Taleb in his book The Black Swan: The Impact of the Highly Improbable. A typical “balanced” portfolio offers a bunch of middle of the road investments: stocks or funds covering different market segments or geographic areas. Such investments are spread so thin they offer limited upside in good times, and large downside in the case of a general market crash. Taleb’s approach, on the other hand, invests at the extremes in the hopes of offering more protection on the downside with more potential upside as well. He’s essentially proposing a win-win situation.
How does it work? You put your eggs in two baskets. In the one hand you hold 90% of assets in hyperconservative investments such as cash. In the other hand you invest the remaining 10% in hyperaggressive products such as options.
What are the best and worst case scenarios here? If the market crashes you lose, at most, 10% since you’ll still have your cash at the ready. That is nothing to laugh at, but you won’t have to start living on the street. And if just one of the speculative investments works, you are in for a huge gain. The result is that you have a small downside and big potential upside.
In theory, this is a great idea. But how does it work when you try to apply it to different realms of the world such as sports and training?
Searching for the big strike
Listen to some coaches talk about the barbell strategy and it sounds like a strategy to focus on the basics. That’s true with 90% of the work. But that overlooks the other 10%. As Magness said on his podcast, his key lesson from the barbell strategy is that we shouldn’t chase the magical workout. But the magic workout is exactly what the barbell strategy is about. The barbell strategy is about betting big with 10% of your investments and chasing high-risk high-reward methods.
Trying to find the magic workout creates a couple of issues for coaches and athletes. First, Magnesss is right, there isn’t a magical workout. And if there isn’t something with a big upside, then what do we do with that side of the barbell?
But, even more importantly, we don’t even need high reward investments. Athletes aren’t trying to double their money; they are often just looking for a 1% edge in performance that could mean the difference between not qualifying for the Olympics and being on the podium. A whole planning strategy based on big upside is not very relevant in a domain where we often only need marginal gains.
Understanding risk management
Another difference between finance and sport is the body’s interconnectedness. Sure, the global economy is connected now more than ever, but not to the same extent that the body is. The impact of a street market vendor’s business in Nairobi on an engineer in Silicon Valley is minimal compared to the impact of one part of the body on another. Despite how the world is connected, we can still create portfolios that are relatively segregated and independent from one another.
This principle of risk management and segregation is the whole foundation of the barbell strategy: by keeping 90% of the investments safe and segregated we can limit the downside. This just isn’t possible with the body. If I have a major injury, such as a torn hamstring, I can’t segregate the injury from the rest of the body. I can’t isolate my leg, cut 10% of my losses and continue on. There is no way to avoid it: my season is over. One bad session or even one bad rep can ruin a season or a career. High risk training creates disproportionately bad consequences when it comes to sportw performance which tilt the whole balance when it comes to risk-based planning methods.
Benefiting from tragedy
During major stock market correction there are many investors that walk away with a profit. Just look at John Paulson, who made billions betting against the housing market in 2008. In finance, by placing the right bets, you can make money when the value of something goes down. This is how Taleb creates the upside in the barbell strategy: placing put options to create potential asymmetrical payoffs in case of major market corrections or crashes.
But is there an equivalent of options in sport? Is there something that can drastically improve your performance when things go wrong? I don’t think so. When things go wrong in sport, the only winners are you opponents. So why do we adapt a strategy based on unrealistic scenarios in our realm?
Turning back to investing
My day job is in the finance world and one thing has always puzzled me about the barbell strategy: if the strategy is so great, why don’t more investors actually use it? That’s also something to keep in mind. When it comes to translating the theory to practice, the strategy even has some shortcomings on its home turf in finance.
To start with, what is a safe investment in finance? Traditionally things like cash or treasury bills are considered a safe haven, but in an economy with high inflation, even safe investments are not safe. If you have kept your holdings in cash for the past year, inflation means you’ve already lost almost 10% of your wealth by doing nothing and chosing a “safe” approach.
And then what is a good bet at the other end of the barbell? If it were that easy to identify, everyone would be investing in it. For Taleb, the long shot is betting on a black swan event. But these are so rare you might be waiting a decade for its arrival and incurring losses every year along the way. Most investors cannot wait that long. They will bleed out from the losses before the payday hits. Patience is a luxury not every investor can afford.
Rethinking the lessons from the barbell strategy
While the barbell strategy has its limits in sports, I do appreciate how the topic has us thinking about risk management. Training is risk management. And there are three lessons I think we can take away here.
The first lesson is that balance isn’t always found in the middle. I don’t think the barbell strategey is the proper way to balance training, but it illustrates how balance could be found in many different situations.
It also shows the value of mitigating losses. As Magness and co-host Jonathan Marcus noted on the podcast, the first rule of making money is not to lose money. Losses matter. In training terms, time lost is the biggest factor: you can’t get better if you’re stuck on the sideline. So we need to ensure training creates robust athletes that can handle the demands (and randomness) of training as much as possible. We absolutely need the 90% side of the barbell and we often undervalue such safe investments in our training.
But in most cases, the one side of the barbell is enough. We don’t need to be greedy, take a moonshot in training, and try get rich. Just staying healthy and training consistently can often be enough. The barbell strategy might sound cool (and sound sporty), but it is overkill. Instead, take good old fashion value investing is as a template to learn from. Value investing is about doing the simple things: investing in solid companies that are overlooked or undervalued. Companies with strong products and management will, more often than not, succeed over time. Athletes with good coaches and fundamental training methods will, more often than not, stay healthy and improve over time.
As Chris Kilmurray put it to me this week: we have to be curious, but critical. Some of the best ideas in training come from outside our area of expertise. There is a lot to learn there, but also we need to be vigilent as well since we are outside of our comfort zone. Simply taking ideas out of context can cause more problems than it fixes