With a baby on the way and the Yankees and my hometown Braves both expected to have rough seasons, 2016 seemed to be a good year for me to take a step back from baseball. But this year has proven too interesting to ignore.
There are a lot of ways to watch a baseball game. You can watch it for its many intricacies, such as where fielders are positioned for each pitch or when a manager should call a double switch. You can watch it as a number cruncher and shake your head in disgust any time there’s a sacrifice bunt or a pitcher bats ninth in the lineup. Or you can just enjoy the show, watching sluggers slug and pitchers duel.
There may be other ways to watch you haven’t considered, too. With all of its statistics and repetition, I find baseball can be a good source of inspiration for investing. Here are a few lessons from the first 30 games of the 2016 season:
It’s better to be lucky than good, but skill wins out over the long term. Bartolo Colon recently made history by hitting his first major league home run at the age of 42. Colon weighs almost 300 pounds, and watching him lumber around the bases was enough to make any baseball fan smile. Still, this was not a case of skill. This is Colon’s twentieth season in the major leagues; you could say the bigger surprise is that it took him this long to make sufficient contact to hit a ball over the fence. Ask yourself: If you were given 20 years, could you hit a home run off a major league pitcher? Maybe not. But even a broken watch is right twice a day. If you kept hacking away, you might square up a pitch.
In the investing world, it can be difficult to attribute a manager’s performance to luck or skill. Don’t get suckered by good short-term returns; everyone gets lucky sometimes. By focusing on longer term returns and disregarding how an investment did over the last week, month or year, you are more likely to outperform and avoid nasty downturns.
One area where investors have been doing a better job of distinguishing luck from skill is in hedge funds. While hedge funds come with an air of exclusivity and cachet, many sophisticated investors now find the combination of high fees and low returns over the long term too much to ignore. In the first quarter of 2016, hedge funds saw their largest outflows since 2009, with many institutional investors, such as pension funds, leading the way. That trend may intensify as time continues to expose hedge fund managers who were more lucky than good.
What goes up must come down, and what goes down usually comes up (eventually). A look at this year’s standings reveals some surprises. The Yankees are in last place, and the Chicago Cubs have the best record in baseball. Yankees fans knew this might be a difficult year, with the team’s old, injury-prone roster and the budget constraints team ownership has put in place. No team can succeed forever, and the Yankees’ last World Series title in 2009 is becoming ancient history. On the other hand, the Cubs – the Cubs! – are young, hungry and a favorite to win the World Series this year. The last time the Cubs won the World Series was 1908. After over 100 years of losses, you have to be pretty coldhearted to root against the Cubs.
Investments go up and down in cycles and can’t be expected to go up or down for too long without reversing course. The U.S. stock market saw its last negative year in 2008, and investors should be prepared to see the stock market decline at some point in the future. Even the Yankees have bad years; the U.S. stock market will too. And while there is no investment I can point to that has done poorly for over 100 years straight, it is important to keep an eye on investments that have struggled in the past but are poised for a Cubs-like rebound. So far this year, out-of-favor investments such as natural resources and emerging market equities have seen a bounce in performance.
Individual companies can go bankrupt, but by holding a diversified portfolio of underperforming investments, you are much more likely to succeed than by buying whatever happens to be hot at the moment. The goal of any investor should be to buy low and sell high. Unfortunately, too often investors become emotional and do the opposite.
Watch out for government distortions. The Braves are off to an awful start, on track to lose over 130 of their 162 games. Fans knew the team would be historically bad this year, and the team’s performance so far hasn’t been a huge surprise. Why is the Braves organization OK with this? The team is opening a new stadium next year that received over half its financing from public funding, and the Braves will own not only the stadium, but also the entertainment district being built around it. The infrastructure that will support that entertainment district will also be paid for by taxpayers.
The headline of a recent Bloomberg article claimed, “The Braves Play Taxpayers Better Than They Play Baseball.” The Braves are owned by Liberty Media, a publicly traded corporation, and its chairman, John Malone, has gone on record saying that “The Braves now are a fairly major real estate business as opposed to just a baseball club.” The Braves ownership has a different set of incentives than many other baseball team owners, and taxpayer money is now distorting how the team is managed and run. Fans of the team aren’t stupid, and attendance last year was the lowest it has been in 25 years. Fans see what is happening. They are currently spending their entertainment dollars elsewhere.
Many investors also have no choice but to allocate their funds in response to government manipulation. With the U.S. holding short-term interest rates near zero and many foreign countries toying with negative interest rates, bond markets around the world have become distorted. Simply investing in a diversified portfolio of intermediate-term bonds involves much more uncertainty than it used to, and investors have to find other ways to save for retirement without taking on too much risk.
In investing, success is ultimately measured by whether you are able to achieve your financial goals. There are other ways to measure success, but in the end, this is all that should matter to any reasonable investor. In baseball, success is determined by wins and losses, and by who wins the World Series at the end of the year. As much as the Braves’ ownership may define success by who owns the most profitable real estate operation, baseball fans care more about the product on the field than what products are available for purchase around the ballpark. As an Atlanta baseball fan, I hope Braves ownership either starts paying more attention to its team – or sells the team to someone who will.
Posted by Paul Jacobs, CFP®, EA
With a baby on the way and the Yankees and my hometown Braves both expected to have rough seasons, 2016 seemed to be a good year for me to take a step back from baseball. But this year has proven too interesting to ignore.
There are a lot of ways to watch a baseball game. You can watch it for its many intricacies, such as where fielders are positioned for each pitch or when a manager should call a double switch. You can watch it as a number cruncher and shake your head in disgust any time there’s a sacrifice bunt or a pitcher bats ninth in the lineup. Or you can just enjoy the show, watching sluggers slug and pitchers duel.
There may be other ways to watch you haven’t considered, too. With all of its statistics and repetition, I find baseball can be a good source of inspiration for investing. Here are a few lessons from the first 30 games of the 2016 season:
It’s better to be lucky than good, but skill wins out over the long term. Bartolo Colon recently made history by hitting his first major league home run at the age of 42. Colon weighs almost 300 pounds, and watching him lumber around the bases was enough to make any baseball fan smile. Still, this was not a case of skill. This is Colon’s twentieth season in the major leagues; you could say the bigger surprise is that it took him this long to make sufficient contact to hit a ball over the fence. Ask yourself: If you were given 20 years, could you hit a home run off a major league pitcher? Maybe not. But even a broken watch is right twice a day. If you kept hacking away, you might square up a pitch.
In the investing world, it can be difficult to attribute a manager’s performance to luck or skill. Don’t get suckered by good short-term returns; everyone gets lucky sometimes. By focusing on longer term returns and disregarding how an investment did over the last week, month or year, you are more likely to outperform and avoid nasty downturns.
One area where investors have been doing a better job of distinguishing luck from skill is in hedge funds. While hedge funds come with an air of exclusivity and cachet, many sophisticated investors now find the combination of high fees and low returns over the long term too much to ignore. In the first quarter of 2016, hedge funds saw their largest outflows since 2009, with many institutional investors, such as pension funds, leading the way. That trend may intensify as time continues to expose hedge fund managers who were more lucky than good.
What goes up must come down, and what goes down usually comes up (eventually). A look at this year’s standings reveals some surprises. The Yankees are in last place, and the Chicago Cubs have the best record in baseball. Yankees fans knew this might be a difficult year, with the team’s old, injury-prone roster and the budget constraints team ownership has put in place. No team can succeed forever, and the Yankees’ last World Series title in 2009 is becoming ancient history. On the other hand, the Cubs – the Cubs! – are young, hungry and a favorite to win the World Series this year. The last time the Cubs won the World Series was 1908. After over 100 years of losses, you have to be pretty coldhearted to root against the Cubs.
Investments go up and down in cycles and can’t be expected to go up or down for too long without reversing course. The U.S. stock market saw its last negative year in 2008, and investors should be prepared to see the stock market decline at some point in the future. Even the Yankees have bad years; the U.S. stock market will too. And while there is no investment I can point to that has done poorly for over 100 years straight, it is important to keep an eye on investments that have struggled in the past but are poised for a Cubs-like rebound. So far this year, out-of-favor investments such as natural resources and emerging market equities have seen a bounce in performance.
Individual companies can go bankrupt, but by holding a diversified portfolio of underperforming investments, you are much more likely to succeed than by buying whatever happens to be hot at the moment. The goal of any investor should be to buy low and sell high. Unfortunately, too often investors become emotional and do the opposite.
Watch out for government distortions. The Braves are off to an awful start, on track to lose over 130 of their 162 games. Fans knew the team would be historically bad this year, and the team’s performance so far hasn’t been a huge surprise. Why is the Braves organization OK with this? The team is opening a new stadium next year that received over half its financing from public funding, and the Braves will own not only the stadium, but also the entertainment district being built around it. The infrastructure that will support that entertainment district will also be paid for by taxpayers.
The headline of a recent Bloomberg article claimed, “The Braves Play Taxpayers Better Than They Play Baseball.” The Braves are owned by Liberty Media, a publicly traded corporation, and its chairman, John Malone, has gone on record saying that “The Braves now are a fairly major real estate business as opposed to just a baseball club.” The Braves ownership has a different set of incentives than many other baseball team owners, and taxpayer money is now distorting how the team is managed and run. Fans of the team aren’t stupid, and attendance last year was the lowest it has been in 25 years. Fans see what is happening. They are currently spending their entertainment dollars elsewhere.
Many investors also have no choice but to allocate their funds in response to government manipulation. With the U.S. holding short-term interest rates near zero and many foreign countries toying with negative interest rates, bond markets around the world have become distorted. Simply investing in a diversified portfolio of intermediate-term bonds involves much more uncertainty than it used to, and investors have to find other ways to save for retirement without taking on too much risk.
In investing, success is ultimately measured by whether you are able to achieve your financial goals. There are other ways to measure success, but in the end, this is all that should matter to any reasonable investor. In baseball, success is determined by wins and losses, and by who wins the World Series at the end of the year. As much as the Braves’ ownership may define success by who owns the most profitable real estate operation, baseball fans care more about the product on the field than what products are available for purchase around the ballpark. As an Atlanta baseball fan, I hope Braves ownership either starts paying more attention to its team – or sells the team to someone who will.
Related posts:
The views expressed in this post are solely those of the author. We welcome additional perspectives in our comments section as long as they are on topic, civil in tone and signed with the writer's full name. All comments will be reviewed by our moderator prior to publication.