Investment Metaphor #13: Small-Ball Baseball

Jul 4

Jul 4 Investment Metaphor #13: Small-Ball Baseball

In baseball, "small ball" is the offensive strategy of scoring runs by getting base runners on base and advancing them to scoring position in a methodical, purposeful way.

In the dead ball era (from around 1900 until the appearance of Babe Ruth around 1919), baseball was a low-scoring game characterized by small ball infield play and a lack of frequent home runs. After the appearance of Babe Ruth, and partially due to the frequent use of new baseballs in a game, the home run began to play a larger role in a baseball game. Likewise, in the steroid era of baseball (the 1980s and 1990s), baseball was a game shaped by the ability to score runs in one feel swoop via power-hitting home run hitters.

Since the decline of the steroid era, baseball has returned to an emphasis on small ball out of necessity. Baseball teams can no longer count on winning games reliably though the efforts of power hitters such as Barry Bonds, Mark McGwire, or Jose Canseco. To be successful, teams now must cultivate players who can get on base consistently and drive in base runners. Home runs still make an appearance, but the path to victory in today's baseball games is a slow and steady one. Singles and doubles get runners on base and drive in previous base runners. And the runs accumulate one by one, hopefully to win the game.

Retirement investing is similar to small ball in baseball. Like baseball, investing has had its home run eras, such as the tech boom of the 1990s in which many people made fortunes by investing in tech stocks that became successful. But the tech bubble burst of 2000-2001 and the financial crisis of 2008-2009 have emphasized the importance of "small ball" in investing.

Wise investors today ensure that their portfolios are diversified so that their risks (and potential gains) are mitigated by the averaging of the performances of multiple stocks or index funds. Instead of trying to get rich quickly through lucky stock pics, today's wise investor invests slowly and steadily, just as today's baseball player is wise to focus on getting on base consistently and playing small ball. Wise investors use dividend stocks, dollar cost averaging, and index funds to invest regularly and to allow their investments to grow over the long term to help ensure a decent retirement.

Just as home runs still have their place in baseball, so too do individual stocks and high gains have a place in modern investing. Home runs are still hit in baseball, and people still get rich off of lucky stock picks. But Big League home run sluggers still have their slumps in baseball, and day traders regularly lose their tenuous fortunes with unlucky stock picks. It would be foolish for a baseball player to think that the home runs are a sure-fire bet for success nowadays, and it would be even more foolish to gamble with your retirement by trying to play the market by day trading or picking stocks trying to get rich quickly.

Investing is still the best course for your retirement, just as the game of baseball goes on. But be wise, don't put all of your eggs in one basket, diversify, invest as much as you can invest slowly and steadily, and strive for consistent returns little by little in the long term. Don't be afraid to invest, as a baseball player would not be afraid to take a swing, but don't make every swing of your investment arm a swing for the fences. Strive for first base, day after day, year after year, and your portfolio will grow steadily and assuredly.