What Is Small Ball and Why Should You Care If We Play It?
Submitted by S. F. Ehrlich Associates, Inc. on August 23rd, 2018
August 15, 2018
A few years ago, Carl Richards, author of “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money,” wrote a column1 in which he advocated that financial advisors should play small ball with money they manage. It’s directly related to this issue’s Stan’s World, so we took it out of the archives, dusted it off, and will use it to explain further why our asset management process so closely resembles small ball.
Sports metaphors are pervasive when it comes to investing. Many investors, for example, like to go for a home run. They want to pick the stock that’s going to become the next Berkshire Hathaway, or Apple, or Amazon, and ride the investment to the moon and back (or even beyond).
Unfortunately, home runs are few and far between, and some more speculative investments may even result in strikeouts (yet another baseball term) whereby the investment yields no return and the dollars invested may actually be lost.
In contrast, small ball is when portfolios grow by a few points here and a few points there. Nothing too dramatic on the upside, and (hopefully) nothing too dramatic on the downside. As Richards wrote: “It may feel and sound counterintuitive, but the more boring you can make the investing experience for your clients, the better off they’ll be.”
In investing, as well as in baseball, you can win by hitting singles without having to hit home runs. So long as the job gets done, boring can indeed be beautiful.
1 Richards, Carl. “‘Is That It?" Clients Want Home Runs. Your Job Is to Play Small Ball.” Morningstar, Jan. 2015, pp. 16–16.
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