Sports fans overlook a commonality between baseball and financial planning: Statistics and probability play a critical role in each. An unappreciated bane of modern journalism is fans can no longer digest the voluminous data in sports sections.
For decades, readers scanned batting and pitching numbers but no longer the circumscribed lists available online only show the few on top. Managers routinely use probability theory, though few call it that, by replacing right handed pitchers with lefties to face left-handed hitters. A balanced lineup has a mix of left-handed and right-handed hitters similar to a balanced portfolio.
A journeyman baseball player observed baseball is a lot like life, line drives get caught and “squibblers” get through. Retirement planning is similar, too. The difference sometimes between a successful retirement and otherwise depends on luck.
If you retire at the beginning of a steep bear market your retirement may get punched out like umpires punch out runners. Kolten Wong will be forever remembered for ending game 4 on a pickoff but if he doesn’t make a play in the eighth inning of Game 3 the Cardinals lose.
Life’s not fair either and what passes for genius is pure luck. Don’t confuse the two.
The 2013 World Series appears on track to set viewership records which is only logical. One can hate baseball and love America or love baseball and hate America — but only in the abstract. Despite all our country’s travails 90 feet between the bases is as close to perfection as man can get. Football and basketball bear little resemblance to games played 50 years ago but Stan Musial, Carl Yastrzemski, Dizzy Dean or Ted Williams would fit perfectly in either lineup — although Fox’s Joe Buck and Tim McCarver pale in comparison to Dizzy Dean singing The Wabash Cannonball.
Spending a ton of money doesn’t guarantee success on the diamond. Oakland, Pittsburgh, and Tampa Bay had combined payrolls almost $30 million less than the New York Yankees, but look who was playing in October. High-priced strategies like signing free agents have the efficiency of hedge funds. The Yankees along with the California Angels and Philadelphia show this futility. Big money purchases do not guarantee success on the diamond or in your portfolio. Add high priced mutual funds to the list, too.
Baseball organizations like the Cardinals and the Braves know the road to success is by developing a strong minor league system. It’s not as flashy as signing the hottest free agent but their approach has worked for decades and will in the future.
Investors should take a long-term approach and avoid the latest fads. Saving regularly, diversifying your investments and protecting yourself against calamities were valid years ago and still work today. Hit the ball, catch the ball, throw the ball, some things never change and simplicity prevails.
Libertarians ought to replace their hero Ayn Rand with Curt Flood. Rand whined about programs like Medicare and Social Security but ended up taking both. Flood refused to be traded and lost a lucrative major league career. Rand was a poser contrasted with Curt Flood, a man who put his money where his mouth was.
Buz Livingston, CFP has a Blue Mountain Beach-based fee-only, hourly financial planning and investment management firm. He works with clients around the country whose portfolios range from $5,000 to $7 million. For more information, visit www.livingstonfinancial.net.