The greatest time of year (in my opinion) is upon us.
The weather is beginning to warm, the grass is getting greener, and the 30 teams of Major League Baseball have taken the field for the regular season.
Baseball has become a big money industry. Every year players receive more money for the talents they have developed and while a lot of consideration goes into signing players, many of their contracts are based on one thing – past performance.
A Hot Commodity
If a player hits 40 homeruns and steals 40 bases in a season, chances are good that many teams will be interested in signing him. A mutual fund with that type of outstanding performance is likely to see a large inflow of funds from investors looking for that same performance in the upcoming year. In some cases a fund is able to maintain that outperformance, but on the other hand you may be investing in a fund or sector of the market that has already peaked and can be viewed as expensive. It’s important to remember that past performance is no guarantee of future success.
Diamond in the Ruff
Recognizing potential before it’s proven is a much harder task than just selecting those who have performed well in the past.
Moneyball, a book that baseball fans and finance buffs alike will enjoy, follows the general manager of the Oakland Athletics in his pursuit to fill a roster with players who he sees upside potential in and for whom he can sign at an attractive value – unlike those who just seek the hot commodities. The key here is to see the upside before others do; otherwise you will likely be paying too much for the investment. At Financial Symmetry our goal is to seek investments that achieve the highest total return for your appropriate risk level through a continuous investment management process.
Filling Your Roster
So how does one go about filling their portfolio’s roster? A team wouldn’t field only one dimensional players and the same goes for your portfolio. You have to diversify in a way that gives you exposure to different markets, sectors, and asset classes –the idea being that you are able to purchase investments that will perform well for years to come. By only investing in sectors or markets that have performed well in the past you are likely going to be investing in assets that are overpriced relative to other parts of the market.
The most successful teams are the ones with a long term focus. While they may not win the World Series every year, through research and experience they are able to avoid emotional decisions and select only the players that allow them to achieve deep-rooted success. Contact us today to establish a long-term investment strategy that helps you achieve your financial goals.
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