Monday, July 28, 2008

Investing Lessons from Baseball

I coach youth baseball, and we’re in the middle of the provincial championships. Last night we fell behind 4-1 late in the game. Things were looking grim, but not hopeless. As a coach, it was tempting to try to take some chances to “make something happen”.

Fortunately, we stuck with the game plan and asked each of our hitters to relax and approach the game the same way they had all season. We were lucky enough to score 13 runs in the last inning to win 14-4.

What has this got to do with investing? Well, just as we resisted the temptation to throw away our game plan when things weren’t going well, investors need to stick with their plan when investment returns are lower than they hope for.

Many investors abandon a sound plan and sell out when prices are lowest. This can be a very expensive mistake. The most compelling reason I’ve heard for holding bonds for the long term is to lower portfolio volatility so that investors won’t panic at the wrong time and sell everything.

Personally, I’m able to resist panic even while fully invested in stocks. This way I get the advantage of the long-term higher returns from stocks than from bonds or a blend of the two.

No matter what mix of investments you choose, if you’re convinced that your plan works for you, stick with it through thick and thin. You never know when your portfolio will make a big comeback.

No comments:

Post a Comment