For the past month, several personal finance bloggers, myself included, have been competing in a friendly game of fantasy baseball. I am sad to report that for the past month, I have been consistently in 8th or 9th place out of twelve competitors. Here are some of the standings among us bloggers….
Now that we are a month into the baseball season, I have realized that there are a lot of relationships between fantasy baseball and investing. Below is a list of some of the lessons I have learned…
Offense Wins. I used to have a t-shirt that said, “Offense wins games, and defense wins championships.” Well, defense definitely does not win fantasy baseball! The game is geared to give high scores to the long ball hitters and offensive players. The game does not favor Gold Glove winners (I have four Gold Glove winners on my team) or error free play. The game does not care about the great extra base robbing play Derek Jeter made the other night.
The same can be said for investing for retirement. Having a overly defensive number of positions in your portfolio is great for asset preservation, but it will not get you to where you need to be for retirement if all you are is playing defense. If you have decades until retirement, an overweight in offensive or more aggressive asset allocation is a great option to help you achieve your investing goals.
Don’t Fall In Love. I am a huge Atlanta Braves fan. I have been every since I was a little boy and Dale Murphy roamed the diamond at Fulton County Stadium. I am still a huge, loyal fan of the team. And, it readily becomes apparent when you look at the roster of my fantasy baseball team which includes the likes of Chipper Jones, Derek Lowe, Brian McCann, etc. I actually have six out of my twenty-three roster spots filled with Braves. But, what has my love of the Braves given me other than heartbreak and only one lousy World Series title despite 15 consecutive post-season appearances? This year is not looking so hot either with the Braves tittering back and forth around the .500 mark. But, I am still loyal, and that may be one of the big reasons my fantasy baseball team stinks!
The same is true with individual stocks that I pick to invest in. I personally own some of my favorite companies like Dr. Pepper and Wendy’s/Arby’s Group. I still hold these stocks in my portfolio because I love their products, grew up with them, or became a huge fan of the CEO (Dave Thomas in Wendy’s case). But, things have changed. Wendy’s, for example, is a shell of the company that Dave Thomas founded. This past year the company was bought by Arby’s and continues its downward slide. Even though the business models stink, I cannot bring myself to sell the stock although I know that it is the right thing to do. We should never buy a stock because we love the product. We should buy a stock because we believe that the company will make money (more money) in the future, and when that fundamental changes, that is the signal to sell. Falling in love hurts the wallet.
Diversification. This past week, I learned that having too many Braves on my fantasy baseball team is not always a good thing. On Thursday, the Braves had an off day while they traveled back home to Atlanta from New York. With six Braves on my roster, I had a lot of trouble filling out my line up, and in fact, I had to leave a few positions blank. I am already handicapping myself by not having as many chances as my competitors to earn points.
The same is of course true with our investments. Diversification is a key strategy that helps us weather the financial storms. Despite the bear market’s recent turmoil, diversification is not dead. In fact, it is more important than ever to have your investment portfolio spread between investment asset classes like large cap, small cap, and international stocks or mutual funds.
Never Give Up Hope. I have really enjoyed playing fantasy baseball this past month despite my dismal performance. And, I am really looking forward to having some bragging rights at the end of the season this fall. Playing has brought me back into the game of baseball that I love and grew up following and playing as a kid. Fantasy baseball has also shown me that there are a lot of similarities between our everyday lives and our financial ones. Today, I was offered my very first trade opportunity. Even though I did not take the deal, I have a renewed hope that maybe all is not lost yet in my fantasy baseball league. Maybe I can make some trades soon and change things around for my team, just like the markets are showing some signs of turning around. All is not lost. There is always hope. One of my favorite authors, Alexadre Dumas, said it best, “All human wisdom is contained in two words: wait and hope.”