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Behaviour Gap: Playing Small-Ball Investing

Oct 30, 2014 | Financial Planning, General, Lifestyle | 0 comments

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This article comes from Carl Richards: American author, CERTIFIED FINANCIAL PLANNER™ and the director of investor education for the BAM ALLIANCE, a community of over 130 independent wealth management firms throughout the US. Through his simple sketches, Carl makes complex financial concepts easy to understand. His sketches also serve as the foundation for his first book,

    The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money….

Last night, the Kansas City Royals claimed their spot in the 2014 World Series. They’ve surprised almost everyone (except maybe themselves) with their record-breaking eight consecutive wins in the postseason. But something else caught my attention this morning when I listened to a report about their success.

The commentator referred to their style of play as “small ball.” He went on to discuss how the Royals aren’t known for their home run hitting, but for stealing bases and solid defence. In the postseason alone, Kansas City has 13 stolen bases. The next closest team is the Baltimore Orioles with four, and the Royals just swept them in the American League Championship Series.

The idea of playing small ball isn’t new. However I doubt few baseball watchers thought much of this wild-card team when postseason play started – until they started winning and kept winning. The way the Royals play the game isn’t the flashiest in the league, but it’s getting the job done. It leads me to ask this baseball-flavoured question about investing:

Do you swing at everything, trying to hit the proverbial home run? Or do you focus strategically on hitting singles and doubles every time?

There’s no question it feels great to hit the ball out of the park, but they’re rare events. With sound advice from your financial planner, you have the opportunity to hit the ball and get on base almost every time.

I’ve thought a lot about this concept because it runs contrary to how many people think smart investing works. It’s tempting for investors to assume they should look for big deals. After all, big deals can lead to big rewards. But most investors will get farther faster playing the investor version of small ball.

Diversification is one of the most successful plays in small ball investing. Of course, it isn’t sexy, so its benefits may not always be easily apparent. Plus, really volatile bull (and bear) markets make it difficult to stay committed to it.

Right now, the markets are flirting with losing all their gains for 2014. As a result, you may worry that you should switch to a version of home run investing. After all, how will you make up those losses before the end of the year? But you need to be reminded of something very important: trying to hit an investing home run in a highly volatile market will require above average play, and knowing the odds, is that even possible?

Financial planners know that playing the small game works and why a home run strategy isn’t a real solution to this current craziness. Yes, hitting investing singles may not be as exciting, and it takes patience combined with good behaviour to get the results you want. Our job is to help you understand why you’re better off getting on base every time instead of striking out.



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