Andy Cole, PE’s Post

Like baseball, success in investing is rarely determined by constant transactions and tinkering. In fact, frequent trading can work against investors. For more, please see A New Season Begins by Brian Kozel, CFP® https://ow.ly/qHft50QEhH3

It's always best to stick to the plan. In this month's Viewpoints, we look at the benefits of higher interest rates in terms of cash yields, how the slower rate of inflation is helping real returns get back to positive territory, and the fact that the sheer size of a $700-million-dollar baseball contract may not be the craziest thing about it. #InterestRates #FinancialPlanning

⚾📈Picture this: A baseball player is up to bat; the pitcher is 60 feet away, where a baseball is thrown at 100 MPH (give or take); the batter is meant to make split second decisions to swing or not. Talk about a difficult call in a short period of time! Now think about those decisions in terms of investment management. Although there are not reports flying at 100 MPH, there are many factors that need to be assessed in a short period of time. Clint McGarvin, CFA, slows the pitch down in his recent writing, follow the link to read more. https://lnkd.in/grf84iph #InvestmentStrategy #WealthManagement #MarketAnalysis #Baseball

As the game of soccer has evolved, the significance of a great midfielder — adept at both offense and defense — has become paramount. As investors, we see parallels in the financial world. What was once a set and rigid for investors – aka the 60/40 portfolio structure based on 60% equities for growth and 40% bonds for risk protection – is now more open and fluid. To use the soccer analogy again, equities are like the forward and wingers of the financial game, focused on offense with high volatility and high reward. Bonds, with their relative stability, are your defense, offering yield with a potential buffer against downturns. Cash, the ultimate safety net, is your goalkeeper. It preserves capital and offers liquidity, waiting to be called into action. But in finance, like in soccer, the Volatility Gap™ between equities and bonds can similarly expose a portfolio to potential losses. Think about that 60/40 portfolio. The risk is in the asset allocation itself, and most advisors are overlooking it. Notably, 93% of the volatility in a traditional 60/40 portfolio is rooted in its equities portion. Given the historical standard deviations and drawdowns of the asset class given their higher volatility, equities contribute disproportionately to the portfolio’s overall volatility. The result? Equities are delivering high returns to investors with a lot of volatility, but fixed income is not negating that volatility. They’re actually matching it, with almost no return. That’s the volatility gap, and it is inherent in any stock - bond portfolio.

Moneyball is widely known and admired. People love the story and want to replicate the success. The key idea we see played out isn't unique to baseball: "How do we maximize 'wins' while leveraging the resources we have available?" This story revolves around the idea in baseball that buying the best players is the way you buy the most wins. Jonah Hill's character challenges this idea saying, "Your goal shouldn't be to buy players. It should be to buy wins. And in order to buy wins, you have to buy runs." But how do you "buy runs"? It boils down to the basics: getting players on base. While analytics offer significant advantages, it's crucial to find ways to reconnect back to the ultimate goal of generating "wins" by identifying the fundamental pieces and understanding how they help generate wins. When we start to do that, we can start to ask the right questions and work toward meaningful impact.

Did you know Ted Williams had a batting average of 0.406 back in 1941? Kinda random but cool fact, right? For those not interested in baseball history it may not have much significance but here’s why I mention it: this is a representation and example of one of Charlie Munger’s mental models - “The Fat-Pitch Strategy” Ted supposedly achieved this by “only going for a certain type of pitch” with no strikes. Baseball enthusiasts know it's easier said than done when facing a breaking ball, but the principle behind it is something we can apply to investing and many aspects of life. When presented with an investment opportunity, if it isn’t in your sweet spot, you don’t have to swing. Wait for the better investment, one that aligns with your confidence in achieving strong returns based on factors like margin of safety and your circle of competence. With that said, if the count is full, bases are loaded and you get a pitch in the strike zone then you gotta do what you gotta do. But the principle to walk away with is: Think carefully, don’t get trigger happy and don’t let too much emotion get involved in financial decisions. Excited to share this to the NDSU Bison Fund this week in addition to a few other of Charlie’s mental models! Looking to grow my ‘book of connections’ on LinkedIn so I’ll likely be posting more frequently. Always open to chat if anyone is interested about it!

Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a 10 percent chance of a 100 times payoff, you should take that bet every time. But you're still going to be wrong nine times out of ten... We all know that if you swing for the fences, you will strike out a lot but also hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000. The long-tailed distributions of returns are why it's important to be told. Big winners pay for so many experiments. Jeff Bezos

Professional football kicks off tonight with the defending champions from Kansas City taking on Baltimore. KC is on the hunt for their third straight Championship, something that has not occurred in the history of the league. Turns out, that's a great parallel to investing. Looking at the annual returns of the major asset classes over the last 22 years, NO asset class has been the best performer for three straight years in a row. The lesson here is DIVERSIFICATION. By building a strategic portfolio that includes multiple asset classes, investors are in the best position for long-term success.

Gone are the days of 'small ball' in baseball. Remember when sacrificing your at-bat to advance a runner was the norm? Now, it's all about power hitting. But does this shift hint at a deeper, more selfish game strategy? This transformation in baseball mirrors a significant trend in investing. Too often, investors are swinging for the fences, chasing the allure of massive returns in a single move. Yet, the essence of investing lies in the willingness to sacrifice something today for a greater win tomorrow. The pursuit of quick, high-stakes gains overlooks the fundamental principle of steady growth. It's the small, calculated moves, the sacrifices, that often lead to the most substantial victories over time. Are we losing the art of patience? How can embracing the 'small ball' mentality lead to more consistent success in our financial strategies? Share your thoughts and let's explore the power of strategic sacrifices in achieving long-term goals. ------------------------------------------ My name is Jake Heisler, CFP® and I'm making an effort to post valuable, timely content here on LinkedIn. If you like this post, do me a favor and hit the 👍 or repost. Better yet, follow me for more content like this. Thank you for reading!

“Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of 10. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball Nd business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is 4. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold! Big winners pay for so many experiments.” - Jeff Bezos 🤯 Share & spread the ideas of great modern day businessman 🤯