We're just a few months into the new baseball season. It's a great game. It's a great time to be in the game. It's early enough in the season that every single team believes that it has a shot to go all the way to the World Series come October. Yes, even the Chicago Cubs. However, instead of watching Alex Rodriguez homer his way back into favor in New York or wonder why you didn't nab Albert Pujols for your fantasy baseball league, let's put the sport into its proper financial perspective.
You can rush out and buy a copy of Moneyball the way many corporate executives have over the years. Michael Lewis's book details how the thrifty Oakland Athletics have remained competitive by making fiscally smart roster moves. It has become the blueprint for efficiency at many companies as well as other small-market teams.
However, you don't need to run a major league baseball team – or even your own business – to let baseball work for you as an investor. This month, I would like to go over a few lessons from the playing field that should help you score a few runs with your portfolio. So go ahead and take a few practice swings in the on-deck circle, but let's take this into the batter's box when you're ready.
1. Respect the bunt single
It's OK to swing for the fences every now and then. The key is to know when to just straighten up your bat and tap the ball softy to land a bunt single. Some investors do nothing but swing hard. In reality, they may not be investors at all. They are more than likely to be speculators, blindly snapping up penny stocks that they know nothing about or high-yielding securities without assessing the default risks. Again, it's OK to take chances once in awhile. However, you also have to survey the field and take what the opposition will give you. If the infield is backing up, take the easy single.
2. Win in relief
As a numbers guy, I love it when a tight ballgame finds managers scrambling to call the right pitchers in from the bullpen. Baseball fans may dread the playtime lulls as new pitchers head up the mound and start tossing their warm-up pitches, but I love it. I see the wheels turning. I see managers analyzing the next few opposing hitters in making their bullpen calls. Do I send in a righty or a southpaw? How have these batters fared against specific pitchers?
Investors need to be bullpen managers, too. Inflationary times may call for precious metals as a consideration. High interest rates should make cash-rich companies even more attractive than their leveraged rivals. Booming fuel prices are likely to sting airlines while benefiting oil exploration companies. Know your bullpen, as well as what you're facing.
3. Get ahead in the pitch count
The key in pitching is to be ahead of the batter. The advantage is yours as a pitcher once you notch that second strike early, whereas the batter has the luxury of sitting on a 3-0 pitch and let the hurler sweat it out. The same can be said for investing. You can get ahead of the pitch count in your portfolio by knowing your investments. Some of the best stock picks in your lifetime will probably be either local companies that you know all too well or stocks in a sector in which you are intimately familiar.
4. Lean on your coaches
Investors can be as cocky as ballplayers sometimes. How often have you seen an arrogant base runner ignore the third-base coach's signal to stop there? The player barrels on through, only to get nailed on a throw to the catcher at home plate 90 feet later. Why didn't he heed his coach? He's too busy circling the bases to see that the relay throw is on the money. The third-base coach sees it all. Investors can be that way, running on adrenaline instead of heeding better judgment. Holding on to a stock, long after turnaround hopes have vanished. Sticking with a corporate junk bond, even after the leveraged balance sheet can no longer support the company's weight. Buying into a foreign IPO, when a more calculated risk would have been to get a little overseas exposure through a proven international mutual fund.
It's human nature to believe that you are right. However, it's also the sign of great investors to recognize that sometimes they don't have all of the answers. Berkshire Hathaway's Warren Buffett has mostly avoided high-tech stocks in his nearly four decades of market-thumping prowess. He didn't let pride get in the way of knowing his own limitations as a base runner. He got burned once by investing in a legacy carrier and has avoided the airline stocks ever since.
5. Deal with the weather or play inside a dome
Rainouts are part of the game. Only enclosed stadiums play through the rain, so most stadiums have a field crew ready to roll a protective tarp over the infield if a rain delay occurs. Yes, there is an investing lesson here, too. If you're going to take chances – whether it's heading out to an open-air stadium or buying risky investments – don't forget your parka.
For investors, that waterproof raincoat comes in the form of knowing your expectations going in. Always be willing to cut your losses when the market climate worsens. It's always better to be a little wet and covered than to risk it all and come out soaking wet.
Good field, no hit
Add it all up and these are just a few of the many baseball lessons that can make you richer as an investor. You've got to love a game where there are more metaphors than double plays.
I guess that's why they play the games on a baseball diamond.
Rick Munarriz is a personal finance columnist for HispanicBusiness.com. He has written for sites such as The Motley Fool and Citysearch and has appeared on NPR, TechTV, and CNN en Español. He can be reached through Reportedly.com where he discusses his latest articles.
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