Outrunning the Crowd: How Elite Athletes Can Navigate the Momentum Trap in Investing

KEY POINTS

• Momentum investing can deliver strong returns in the short term, but it’s highly vulnerable to macroeconomic shifts like rising inflation and slowing growth, making it a risky core strategy.

• Elite athletes must guard against performance-chasing instincts, as momentum investing often disguises fragility and overexposes portfolios to crowded, hype-driven trades.

• Long-term success in investing—like in sport—requires a diversified, disciplined approach grounded in fundamentals, not just speed or sentiment.

👉 Bonus: Below you will find five ChatGPT prompts that you can use to develop your expertise in this area.

When you’ve built your career on chasing excellence and delivering under pressure, it’s easy to mistake motion for progress. The same instinct that drives performance on the court or field can lead elite athletes to invest in whatever’s trending. That’s momentum investing in a nutshell—buy what’s going up, sell what’s going down. Simple. Effective. Seductive.

And, as the latest data from the S&P Momentum Index shows, historically profitable: a $1,000 investment in 1994 would be worth $28,500 today—far outperforming the broader market and alternative strategies like value or high-dividend investing.

But those numbers don’t tell the full story. The truth is that momentum isn’t a strategy so much as a mood. It thrives in confidence, dies in volatility, and punishes complacency. In the current environment—rising tariffs, slowing growth, and inflation on the move—that mood is shifting fast.

For athlete-investors serious about building not just capital but legacy, understanding the inner mechanics of momentum—and when to pivot—is essential.

Momentum Is a Mirror, Not a Map

The core idea of momentum investing is profoundly behavioral. You’re not betting on what a company is worth, but how other investors will feel about it tomorrow based on how they felt about it yesterday. It’s not a forecast. It’s a feedback loop.

That’s part of what makes it dangerous for elite athletes. In sport, feedback loops build resilience: win or lose, learn, refine. In markets, that same loop can become an echo chamber—especially when confirmation bias kicks in.

Just look at the current bull market’s crown jewels, the “Magnificent Seven.” Their spectacular run in 2023–2024 was driven as much by narrative (AI, cloud, scale effects) as by fundamentals. But when everyone buys the same story, even a modest plot twist—regulatory scrutiny, earnings miss, geopolitical shock—can tank the ending.

Momentum, then, isn’t a directional signal. It’s a sentiment proxy. That’s not strategy. That’s psychology.

When the Game Slows Down, the Strategy Breaks

Here’s where the economic backdrop matters. Momentum’s worst enemy isn’t just volatility—it’s stagflation. S&P’s long-cycle data shows that in environments of falling growth and rising inflation—exactly where the global economy may be heading—momentum strategies post average annual losses of 13.33% (according to a 2024 study by S&P).

Why? Because momentum relies on clear, consistent narratives. But when macro conditions deteriorate—think 1970s stagflation or the early 2000s post-dotcom hangover—those narratives break down. Uncertainty shatters consensus, and with it, the trust that fuels price momentum.

Athletes understand this intuitively. In slow, grinding contests, it's not about who has the flashiest move—it’s about control, spacing, endurance. Investing is no different. During downturns, momentum traders often become forced sellers. That opens the door for the patient—those playing the long game with capital allocated to value, cash-generating assets, or even distressed opportunities.

Momentum Performance

Three Hidden Forces That Undermine Momentum

For those building meaningful portfolios, here are the deeper structural issues that elite athlete-investors must understand before they commit serious capital to momentum strategies:

Momentum Is Prone to Crowding

As soon as a strategy becomes obvious, it becomes inefficient. With so much quant money chasing momentum via factor ETFs and algorithmic models, signals degrade quickly. And unlike value investing—which can remain effective even when out of favor—momentum’s strength weakens when it becomes a crowded trade.

Actionable takeaway: Monitor fund flows, not just price charts. Spikes in ETF inflows to momentum products can be an early warning signal that the strategy is overheating.

Performance Chasing Is a Behavioral Risk

Athlete-investors often have an edge in execution and decisiveness. But those traits can backfire in investing, where overtrading erodes returns. Momentum reinforces these habits—buy high, sell higher—which can disguise poor decision-making as success in short-term bull runs.

Actionable takeaway: Create a structured investment calendar. Limit portfolio shifts to scheduled reviews, not emotional reactions. Use trailing indicators (e.g., rolling Sharpe ratios) to validate conviction.

Momentum Masks Fragility

The companies that dominate momentum indices often score poorly on other metrics: low cash flows, high valuation multiples, and weak resilience to credit tightening. That’s why T. Rowe Price has labeled several momentum peaks as “junk rallies”—just before steep crashes.

Actionable takeaway: Screen your portfolio for balance sheet strength. If your momentum bets are mostly in high-debt, low-margin businesses, your downside risk is bigger than it looks.

The Athletic Edge: Pattern Recognition and Risk Discipline

Where elite athletes can excel in this world is not by mimicking Wall Street behavior, but by leveraging what made them great in the first place: pattern recognition, long-range discipline, and decision hygiene under pressure.

Think of portfolio construction like designing a training regimen. You wouldn’t train solely for speed, ignoring strength, flexibility, and recovery. Similarly, momentum might be your sprint strategy, but you need core strength—value holdings, uncorrelated assets, asymmetric bets with capped downside.

Use your performance mindset to ask deeper questions:

• Am I allocating capital to follow the crowd or to create edge?

• Do I understand how my exposure will behave in different economic climates?

• Can my portfolio survive a 30% drawdown in the market—and if so, what would I do in that moment?

Athletes don’t just endure losses—they use them to refine strategy. That’s the mindset that separates traders from long-term capital allocators.

Sharpening the Playbook for Long-Term Wins

If you're serious about building an enduring legacy off the field, consider evolving your investing playbook in the following four ways. To succeed in this arena, elite athletes need more than instinct. They need frameworks:

1. Adopt an "All-Weather" Allocation: Momentum dies in downturns. Stay aware of macro trends—tariffs, inflation, interest rates—and how they affect sentiment. Blend momentum exposure with anti-cyclical and income-generating assets. This isn’t just about diversification—it’s about resilience.

2. Think Like a Proprietor, Not a Punter: Momentum might be part of your portfolio—but it shouldn’t be the whole playbook. Blend strategies. Include value, income, private deals, or venture-stage companies with long runways. Shift part of your portfolio toward private investments or direct equity stakes in businesses where you can leverage your brand, network, or insight. This aligns your capital with your competitive advantage.

3. Use Volatility to Your Advantage: Momentum’s returns look impressive, but they mask deeper volatility. Always ask: is this strategy driven by real business fundamentals, or by market psychology? The next downturn will expose weak hands. Be ready to act. Build a cash reserve, identify distressed assets in advance, and set triggers—not emotions—for deployment.

4. Invest in Insight, Not Just Information: Momentum is data-rich but insight-poor. If everyone is talking about it, you’re probably late. The most profitable plays often feel uncomfortable and contrarian. Surround yourself with advisors and co-investors who can filter signal from noise—and challenge your biases. You wouldn’t train without a coach. Don’t invest without strategic feedback.

The Bigger Game: Building Long-Term Value

The best athletes don’t just play hard—they play smart. The same holds in investing. A world-class mindset in sport doesn’t automatically translate into world-class financial returns. It takes retooling, rethinking, and reframing how you define “winning.”

In sport, success is linear and measurable. In investing, it’s nonlinear and often invisible—until it isn’t. That’s why the shift from athlete to investor demands more than ambition. It requires strategy, risk awareness, and above all, humility.

The investors who succeed over decades—like the most respected athletes—aren’t the ones who chase the scoreboard. They build systems, master fundamentals, and thrive across seasons. They know that sometimes the smartest move is sitting on the bench.

5 PROMPTS THAT ATHLETES CAN USE TO DEVELOP AND BUILD EXPERTISE

• Act as an investment strategist. Analyze the pros and cons of momentum investing in today’s macroeconomic environment—especially with rising inflation and slowing global growth—and explain whether it belongs in a diversified portfolio.

• Explain how to identify the early warning signs that a momentum-driven market rally is turning into a bubble, and how to position a portfolio defensively without missing upside.

• Break down the behavioral biases—like performance chasing and herd mentality—that make momentum investing risky, and suggest mental models or systems an elite athlete-turned-investor can use to manage these risks.

• Design a sample investment portfolio for an elite athlete that includes momentum exposure but also integrates strategies like value, dividend, and private equity to build long-term resilience and performance.

• Help me build a personal investment framework as an athlete-entrepreneur that balances my appetite for high performance with a disciplined, long-game approach—incorporating when to use or avoid momentum investing.

👉 Check ChampionsChat GPT for your prompts.

Final Whistle: Play for the Full Season

Elite athletes know that legacy isn’t built in highlight reels—it’s built in seasons, off-seasons, and recoveries. The same goes for wealth. Great investors, like great athletes, prepare for invisible forces—shifts in wind, fatigue, momentum changes. Market cycles work the same way. The current environment is sending signals: inflation’s rising, growth is slowing, momentum is flashing red.

For athlete-investors, the challenge is to decode these signals before the crowd reacts.  Momentum might make headlines and juice quarterly returns. But real capital growth—just like championship rings—comes from strategy, not speed.

Your next investment decision isn’t just about catching the wave. It’s about choosing the current that will carry you long after the cheering stops. Winning in business and investing isn’t just about moving fast—it’s about knowing when to move, where to look, and what not to chase. Just because a trend has been your friend, doesn’t mean it won’t turn on you.

Make your next move count.

👇

I really appreciate you reading my note today.

Peace,

Irg

Irg’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. This work may feature assets and entities in which the author has invested.

🙏 Thanks for reading Irg's Athletes in Business Notes! Subscribe for free to receive new notes and support my work.

© 2024 Athletes in Business Notes by Patparius GmbH