Benjamin Beck, CFP®Lessons from the Diamond: Applying Baseball's Mindset to Investing
Of all the great things I love about summertime, the one thing that stands out to me is baseball.
In fact, as I write this it is All-Star week for Major League Baseball, and I recently watched the Home Run Derby. Watching the most talented professionals in the game hit with such relaxation, it struck me how important it is to play "loose" and without stress. This is when we perform at our best. The derby exemplified this perfectly, with the batting practice pitcher lobbing pitch after pitch to batters who, with seemingly effortless swings, deposited many of them far into the outfield bleachers. The batters were so laid back that they weren't even wearing helmets!
I even mentioned to my two boys (who were watching with me) that this is the way to approach not just baseball, but life and work. You can and should be serious about your craft, but when it’s game time, it’s best to let go of the pressure and let your hard work shine through naturally.
Reflecting on my own professional baseball career, I remember struggling with this concept.
As a batter, facing an 0-2 count was stressful, and the pressure I put on myself was immense. In contrast, when the count was reversed, 3 balls and no strikes, it brought total relaxation. Looking back, I realize that putting so much pressure on myself during difficult moments was not conducive to great performance. Each at-bat is just one of many in a season. Similarly, in life and investing, we often stress over short-term outcomes instead of focusing on long-term goals.
After my baseball career, I transitioned to the financial advisory world, managing clients' hard-earned assets. Initially, I felt "behind in the count" whenever the markets fell. However, a chance meeting with David Mallach transformed my perspective. I learned that most of an investor's lifetime return comes from behavior, not investment performance. The quality of our strategy, research, and execution is important, but what truly sets us apart is avoiding the BIG behavioral mistakes. This realization has formed the cornerstone of my career.
Blocking Out Noise and Focusing on Long-Term Goals
I’ll certainly acknowledge that blocking out the noise can be extremely challenging, especially when we’re facing events like pending elections, the debt ceiling, inflation, interest rates, and even attempted assassinations. Sometimes, it can feel like the better thing to do would be to shift strategy. But we must try to stay true to our original plan. When we feel behind in the count, we need to forget the markets, stop comparing performance, and turn off the television. By controlling our psychology and focusing on behaviors that support our long-term goals (rather than derail them), we achieve not just financial success, but happiness.
As always, I remind you of the timeless truths about successful wealth management before moving to current observations.
General Beck Bode Principles
- We are goal-focused, plan-driven, long-term equity investors. Our portfolios are based on your most cherished financial goals, not on economic or market forecasts.
- We do not believe in consistently forecasting the economy or timing the markets. “In-and-out” market strategies do not provide an advantage.
- The best way to capture the full return of equities is to remain fully invested.
- We are prepared to ride out market declines, knowing that reinvested dividends will buy more lower-priced shares, and the power of compounding will continue to benefit us in the long term.
Current Commentary (July 2024)
- The first six months of 2024 can be summarized in two points:
- 1. The U.S. economy continued to grow, albeit modestly.
- 2. The equity market performed well, driven by accelerating earnings growth and dividend increases.
- Economic growth remained positive, avoiding recession, with strong job growth. Inflation slowed, giving the Federal Reserve no immediate reason to cut interest rates. Monetary policy remains gently but firmly restrictive, which long-term investors should prefer. The Fed's primary goal is to reduce inflation to 2%.
- Despite the lack of rate cuts, the equity market advanced solidly. Earnings growth and rising dividends fueled this progress. Current estimates from Bloomberg suggest an 8.8% increase in S&P 500 earnings this year, with a further 13.6% increase in 2025.
- Cash dividend payments are at record levels, yet S&P 500 companies are paying out a below-average percentage of earnings. This suggests room for further dividend growth this year and next. Earnings and dividends drive the long-term value of our core investment asset: equity in a diversified portfolio of successful companies.
The Home Run Derby Principle
Just as the batters in the Derby were poised to hit fastballs out of the park, we too can be ready to hit the long ball with our portfolios. By staying calm and focused, we can avoid the pressures of the moment and let our long-term strategy guide us to success.
Thank you once again for your trust and partnership. I wish you all a wonderful rest of summer. It is a privilege to serve you, and I look forward to continuing our journey together, always ready and confident, and sitting on that next fastball!
Sincerely,
Ben Beck, CFP®
Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.