3 Lessons Investors Can Learn from Miguel Cabrera

 I grew up in a sports-loving household – playing sports and watching sports was a large part of my youth.  It should not be surprising that many of my key life lessons have been learned through sports analogies.  As I watch Miguel Cabrera -- one of the greatest hitters in Major League Baseball --  I can’t help but notice how investors might learn from three of his key skills:

1. Always keep your eye on the ball – Remember that your investments are tools to get you to your planning goals; don’t let the ups and downs of the market cause you to lose sight of your long-term goals.
2. Swing for a base hit – Keep your investment strategy balanced and stick to the fundamentals.  Taking big “swings” with trendy investment vehicles or making big shifts in your allocations may put you at risk for striking out.
3. Hit for average – The goal of your investment portfolio should be to return what is needed to reach your financial planning goals within your tolerance for risk.  Maintaining a moderate, but positive, average return over your financial life can get you farther than those who try to swing for the fences, but strike out more times than not.

As you are watching your favorite baseball team this season, keep in mind that the best hitters, like the best investors, stick to the fundamentals.  And don’t forget, your financial planner can be your most valuable hitting coach.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute investment advice.  Prior to making an investment decision, please consult with your financial advisor about your individual situation. Any opinions are those of Center for Financial Planning, inc., and not necessarily those of RJFS or Raymond James.  Investing involves risk, and investors may incur a profit or a loss.

The Anxious Investor

Ripple effects from the global financial crisis and recession of 2008 are etched in our memory.  In a previous post, A Fear-Driven Investor, we discussed the tendencies investors display when decisions are driven by fear or greed.  When fearful investors can let go of what scares them about the market, the course evens. It’s not unlike letting go of fears in other areas of life. 

When I think of the fear-driven investor, I think about what happens to confidence and decision making when we feel worried and anxious. Have you ever tried doing anything when you are worried and anxious?  I think about the first time I went kayaking on Lake Huron with my sister. 

My sister was more expert than I.  I imagined a big, smooth pond and a sleek little kayak but I really had no idea what I was doing especially when the storm clouds blew in.  My idea of kayaking was to relax more and stay physically fit; however I was a bit fearful and anxious about tipping over when the waves got bigger!  

What happens to anxious kayakers?  I quickly found out! When your body is loose, you can move the boat and make adjustments.  When you get anxious and stiff, the boat becomes tippy and unstable. Once I understood how one decision affected another, I began to relax and I started doing much better.  

If you are driven by news rather than an investment plan, you may end up tipping your portfolio like I tipped my canoe. 

Want to avoid getting “wet”? Here are 3 tips for investors to help reduce anxiety and promote a smoother ride:

• Set realistic expectations - Trying to refine the future to a point where you will never be surprised creates a headwind that is hard to overcome.
• Understand the effect your financial decisions have on other financial issues - Focus on your own behavior, not the market’s behavior. 
• Re-evaluate your investment plan periodically - Small and consistent course corrections are just as important as the plan.

I still kayak on occasion, and I’m always reminding myself to stay relaxed and in the flow. It’s something I remind myself on a regular basis when planning investments as well. It’s much easier to keep your boat afloat when you loosen up, especially when the investment waters get choppy.

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Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Investing involves risk, including risk of loss.

The Gambler

While I’m not a big country music fan, one of the few country songs I can sing along to is “The Gambler” by Kenny Rogers.  While Kenny certainly knew how to make money, he also had a pretty good idea of how to keep it:  “You gotta know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run.”  There’s a valuable lesson for investors in those lyrics. 

When investing most people (and professionals too), spend a lot of time deciding which investments to buy and little time understanding when to sell.  Having a security selection process and understanding what you own and why you own it is important to the investment process, as you can read about here, but it may be even more important to successful investing to have a proper sell discipline.  

Part of your process, even before buying a security, should be to outline reasons you would hold the investment even, perhaps, through periods of underperformance and also to establish factors that would cause you to sell it in the future.  At The Center for Financial Planning, Inc. some of our potential sell reasons include: 

• Key personnel departure
• Attainment of your price target
• Increased correlation to other investments; and so on.

Having these points in mind makes it easier and much less emotional when thinking about selling a position.  

While it is usually best to buy and hold over longer periods of time, it is a good idea to play devil’s advocate with your portfolio.  Have you heard of the endowment effect?  Simply put the endowment effect states that once you own something you start to place a higher value on it than others would.  A way to potentially mitigate the endowment effect is to ask yourself, “If I were to build a portfolio today would this security be part of it?”  If the answer is “no” then it may be time to sell the investment and purchase something with greater growth potential from this point forward. 

Knowing when to hold ‘em and fold ‘em doesn’t come easily. But with some thought, you can successfully time when you buy and when you sell, because you never want to have to walk away … or worse yet … have to run!

James Montier.  Little Book of Behavioral Investing.  2010

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The information contained in this report does not purport to be a complete description of the developments referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Investing involves risk and you may incur a profit or loss regardless or strategy selected.  Consult a Financial Advisor before implementing any investment strategy.  Links are being provided for information purposes only.  Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.  Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

Investing Against Human Nature

“The loser is the trend-chasing, comfort-seeking investor. The market doesn’t reward comfort. It rewards discomfort.”  Rob Arnott

The above quote brings to mind a book I read recently, The Little Book of Behavioral Investing by James Montier. It attempts to describe in detail why we are our own worst enemies in investing. 

Human evolution has dictated much of our decision making process and emotions.  In modern society we don’t have to play the predator/prey game of survival on a daily basis.  Yet much of our instincts are based on this survivalist mentality developed hundreds even thousands of years ago. 

Contrary to when it was safer to go with the herd, a safety in numbers mentality can be detrimental when applied to modern investing.  Enter the discomfort.  Going against the grain when it comes to investing can be very scary, for example funding your Investment accounts when you’d rather throw a brick through your financial advisor’s window; however, it is generally where the best investment returns come from. 

Having a sound investment process in place to identify opportunities and maybe more importantly to avoid “knee-jerk” reactions is critical in investing.    Process, in an uncertain world, is one of the few things we can control.  Just as important as the process, is the time that must also be taken to reflect on your process when you are most successful and not necessarily when you are making the most mistakes. 

Investing involves risk and you may incur a profit or loss regardless of strategy selected.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.