Are you a home run hitter?

Few events in sports are more exciting than the home run. Kirk Gibson’s spectacular home run to beat the Oakland A’s in game 1 of the 1988 World Series is my all-time favorite. Carlton Fisk’s energetic home run in the 1975 World Series against the Cincinnati Reds was incredible. Aaron Boone’s home run against the Boston Red Sox that sent the Yankees to the 2003 World Series was spectacular.  

Do you need to hit a home run every time you invest? Is it necessary to swing for the fence on each purchase? It would be nice to hit four-baggers consistently, but it’s not required for you to achieve financial success.

Tony Gwynn was one of my all-time favorite baseball players, a legendary hitter who played his entire career for the San Diego Padres. He finished his remarkable career with a .338 batting average and 3,141 hits which put him in the baseball Hall of Fame. He was not known, however, for hitting home runs.   During his twenty-year career, he only hit 135 home runs.  By comparison, Hank Aaron hammered 755 home runs, and Babe Ruth swatted 714. Tony Gwynn made a career of hitting singles and doubles.

How can you employ an investment strategy of hitting singles and doubles? A time-tested method is to invest in a diversified portfolio of low-cost mutual funds or ETFs. A balanced account of 60% stocks and 40% bonds distributed across several funds is up 19.65% over the past year, and since 1971 it has averaged 10.37%.[1]  The funds in the portfolio performed well, but none of them had eye-popping returns. However, as a team, they produced exceptional results.

Baseball player hitting ball with bat over white background

The winning formula for financial success is systematic investing, keeping your costs low, diversifying your assets, and thinking long-term. If you follow this simple model, you’ll hit a home run!

“I’m a chemistry guy. I believe you’ve got to play together to have a chance to win.” ~ Tony Gwynn

October 21, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] Dimensional Fund Advisors

The Washington Nationals

The Washington Nationals are going to the World Series for the first time in their history. The Nationals moved to Washington DC in 2005 from Montreal where they were the first major league baseball team in Canada. The Expos played in Montreal from 1969 to 2004. The combined franchise has had some phenomenal players like Vladimir Guerrero, Stephen Strasburg, Andre Dawson, Tim Raines, Pedro Martinez, Gary Carter, Jayson Werth, and Bryce Harper.

Mr. Harper was the first pick for the Washington Nationals in the 2010 Major League Baseball draft, and he made his major league debut on April 28, 2012.[1] He was the face of their franchise. He was their marquee player, that is, until this season when he decided to leave the Nationals and take his talents to Philadelphia, signing a 13-year contract for $330 million.

Despite losing their best player, the Nationals entered the postseason as a wild card and proceeded to beat the Dodgers and Cardinals. They’ll now play the Houston Astros in the fall classic.

There is no “I” in team, and sometimes losing a high-profile player may be a blessing and not a curse. I grew up in Los Angeles, and I was a huge Dodgers fan. From 1974 to 1988, they won the World Series twice and the National League pennant five times. These great Dodger teams played as a unit and rarely relied on the talents of one superstar player.

The Oakland A’s are probably the best team to rely on a group effort as detailed in Michael Lewis’s excellent book, Moneyball. The payroll for the A’s this season was $92 million while The New York Yankees, who rely on star power, had a payroll of $216 million.[2] The Yankees spent $2 billion on marquee talent this decade and failed to reach the world series once. It’s the first time they missed playing in the World Series in a decade since 1910.[3]

As an investor, you’d be wise to follow the team approach and give up trying to find the one great stock. Who wouldn’t want to find the next Microsoft, Apple, or Google and get in on the ground floor? It’s easy to get attracted to star-studded stocks that are hyped up on cable news shows while ignoring the basics of investing. Even if you found a diamond in the rough, star stocks do fall on hard times. Microsoft traded flat for 16 years from 2000 to 2016. Facebook fell 53% during it’s first few months as a publicly traded company while Google dropped 61% during the Great Recession.

Identifying stars before they become stars is difficult. This year a few high-profile stocks have come public with much fanfare, but their performance has been weak. A few of the superstars are Lyft, Slack, Uber, and Peloton. Despite the pre-IPO hype, they’re down 48%, 42%, 24%, and 14%, respectively. By comparison, a globally diversified portfolio of low-cost mutual funds with an allocation of 60% stocks and 40% bonds is up 15.4%.

For most investors, investing in a diversified portfolio of low-cost funds based on your financial goals is the best strategy. However, if you want to swing for the fence and try to hit a home run with a stock or two, limit your purchase to 3% to 5% of your investment capital.

My prediction for this year’s World Series? The Astros will win it all in six games!

Play Ball!

The best possible thing in baseball is winning the World Series. The second-best thing is losing the World Series. ~ Tommy Lasorda

October 22, 2019

Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

 

 

 

 

 

[1] https://en.wikipedia.org/wiki/Bryce_Harper, Website accessed October 22, 2019

[2] https://www.spotrac.com/mlb/payroll/, Website accessed October 22, 2019

[3] https://www.wsj.com/articles/the-yankees-decade-of-almost-2-billion-spent-zero-titles-won-11571579532?mod=trending_now_pos2, Brian Costa and Jared Diamond, October 20, 2019

My Two Best Days

Tommy Lasorda once said, “The best possible thing in baseball is winning the World Series. The second-best thing is losing in the World Series.” He added, “When we win, I’m so happy I eat a lot. When we lose, I’m so depressed, I eat a lot. When we’re rained out, I’m so disappointed I eat a lot.” Mr. Lasorda didn’t let his circumstance alter his mood. He recognized the beauty of playing baseball regardless if his teams won, lost or were rained out. His two favorite days were managing when the team won and managing when they lost.

When I’m asked about how the market is performing, I’m not sure how to respond because up days and down days both provide excellent opportunities to investors. Of course, everybody likes to make money from a rising market. When stocks are rising consumer confidence is high and people feel good about their wealth and they spend money.

When the market is falling, people feel depressed and frightened because they see their assets dropping in value. When stocks fall, investors lose confidence and spend less money.

Should it matter if stocks are rising or falling? Over time, the answer is no. Stocks have risen about 73% of the time since 1926 and 54% of the time they’ve been the best performing asset class.[1] Since 2009 the S&P 500 Index has risen 267%, averaging 14.15% per year. It has not had a losing year since 2008, including this year.

A winning percentage of 73% is pretty good, but what about the remaining 27%? The market has finished in negative territory 27% of the time since 1926 and we have experienced some doozies. The market fell 43% in 1931, 35% in 1937, 26% in 1974, 22% in 2002, and 37% in 2008. Despite these disruptions, the market has averaged 10% per year for almost 100 years.

When markets drop, fear rises. However, when stocks fall you have an opportunity to buy great companies at better prices. Investors loved Amazon at $2,050.50 but hated it after falling 26% to $1,520. Why? Amazon was the same company on October 17 at its high as it was on October 30 near the low. If the market rises most of the time, why not use down days to add stocks to your portfolio? Instead of fearing a drop, get excited that you can now add great companies to your account.

As I mentioned, the S&P 500 has been the top performing asset class 54% of the time, meaning 46% of the time another investment is doing better. In 2008, long-term bonds soared 26%. Last year emerging markets climbed 35%. No trend lasts forever, so a diversified portfolio is recommended so you can take advantage of all global markets.

A globally diversified portfolio of mutual funds with a mix of 60% stocks, 40% bonds has generated an average annual return of 7.5% for the past 20 years despite the lost decade from 2000 to 2010.[2] A $100,000 investment in 1998 is now worth more than $424,000.

To stay invested for the long haul and to benefit from the rise in global markets, you need a plan. Your plan will align your goals, risk tolerance, asset allocation and investment selection. With this alignment you can enjoy the up days and tolerate the down ones. Your plan will keep you focused on those things that matter to you and your family most.

I like up days and down days, so, to me, the market is always doing well regardless of the daily moves. Markets have been rising and falling for centuries, so take advantage of up and down days to generate wealth for you and your family.

Man, I did love this game. I’d have played for food money. It was the game… The sounds, the smells. Did you ever hold a ball or a glove to your face? ~ Shoeless Joe Jackson (Ray Liotta – Field of Dreams)

11/12/2018

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

[1] Ibbotson® SBBI® 2015 Classic Year Book

[2] Dimensional Fund Advisors 2018 Matrix Book

1994

Major League Baseball had a tough year in 1994 due to a strike by the Major League Baseball Players Association. The strike caused the cancellation of the World Series, the first time since 1904. It was a bad year for baseball and a lousy one for investors.

The U.S. stock market barely budged in 1994 as the S&P 500 returned a paltry 1.3%. Long-term government bonds fell 7.8%; emerging markets dropped 7.3% and Real Estate Investment Trusts (REITs) produced a small return of 2.7%. The commodity sector did well generating a return of 16.6%.[1] Sound familiar?

What made 1994 so frustrating was the previous year saw stellar returns from stocks and bonds. The S&P 500 returned 10.1% and long-term government bonds gained 13.2%.

What happened in 1994? Alan Greenspan and the Federal Reserve surprised markets by raising interest rates and Fortune Magazine called it the “Bond Market Massacre.”[2] The Fed Funds rate started the year at 3.04% and finished at 5.5%, an increase of 2.46%.

When markets do nothing, investors get antsy and suffer from boredom. When this happens, they make changes to their portfolio by chasing returns and pouring money into hot sectors.

In 1994 investors sold stocks and bonds because the Federal Reserve was aggressively hiking interest rates. A rising rate environment is not good for stocks or bonds.  How did the markets fare since 1994?

Investors poured money into the commodity sector because of its stellar performance. With a strong economy and rising rates, investors chased this hot sector. However, those who allocated money here made just 2.6% per year from 1994 to 2017, barely outpacing inflation. A $10,000 investment grew to $18,046[3]

Buying bonds when rates rise hardly makes sense, but if you purchased long-term government bonds in 1994, you made 7.4% per year through 2017. A $10,000 investment grew to $51,653.[4]

The S&P 500 returned 9.7%. A $10,000 investment grew to $84,091. From 1995 to 1999 the S&P 500 rose 144%![5]

REITs returned 10.4%. A $10,000 investment grew to $97,339.[6]

Today, investors are frustrated by the lack of performance with stocks and bonds. The stock market is puttering along, the bond market is falling, and international investments are trending down.  It feels like 1994 all over again.

Here are a few thoughts to protect yourself from doing something that may harm your long-term performance.

First, do nothing. Don’t chase returns. Don’t make dramatic portfolio changes. The best course of action, at times, is to let your portfolio find its footing. The long-term trend is still in force.

Diversify your accounts across sectors and markets. In 1994, international markets and U.S. Treasury Bills performed well. This year, small-cap stocks and growth companies are enjoying excellent returns.

Buy bonds for your account despite rising rates. They should be included in your portfolio for safety and income.

Rebalance your portfolio on an annual basis. This will keep your asset allocation and risk level intact. It’s also a great way to automate the buy low, sell high strategy.

A financial plan is paramount if you want to be a successful investor. It will help you to stay focused on your goals.  It would be great to earn double digit returns every year, but it might not be necessary for you to achieve your financial goals. Most financial planning professionals use single digit returns when forecasting projections for their clients.

In 1995 the World Series returned, and Major League Baseball has been doing well ever since. I’m sure our global markets will be fine also. Play Ball!

But if we hope for what we do not see, we wait for it with patience. ~ Romans 8:25

July 10, 2018

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog. 

[1] Dimensional Fund Advisors 2018 Matrix Book.

[2] http://www.businessinsider.com/1994-federal-reserve-tightening-story-2013-1, Matthew Boesler, January 25, 2013

[3] Dimensional Fund Advisors 2018 Matrix Book.

[4] Ibid

[5] Ibid

[6] Ibid

7th Inning Stretch?

The longest baseball game in Major League history occurred on April 18, 1981 between the Pawtucket Red Sox and the Rochester Red Wings with the Red Sox winning 3 to 2.   It was 33 innings long and lasted over 8 hours.  Each year about 9% of Major League Baseball games go into extra innings.[1]

Sports analogies are common on Wall Street.  A few analysts have mentioned that the market is currently in the 7th or 8th inning because of its historic rise and current valuation.  They’re speculating that the end is near.

Of course, no one knows when or how the stock market’s run will end.  The fans who attended the Red Sox v. Red Wings baseball game thought they’d see a 9-inning game not knowing it would continue for another 24 innings!  Those who stayed for the entire game endured the equivalent of 3 ½ games.

Stocks can continue to rise despite what people think about the duration of the bull market or their current valuation.  What should you do if you’re concerned about an overvalued market? Here are few suggestions.

  • Asset Allocation. The current rise in the stock market may have pushed your asset allocation beyond your risk level.  Let’s say you purchased an equal amount of the DFA Core Equity I Fund (DFEOX) and the DFA Intermediate Government Fund (DFIGX) Fund on March 1, 2009.   At the end of October your mix is now 77% stocks and 23% bonds.  This is a wide deviation from your original 50%/50% portfolio.  In this case you need to rebalance your portfolio back to your beginning asset allocation.[2]
  • Bonds. Adding bonds to your portfolio will reduce the risk in your portfolio. During the Great Recession the S&P 500 fell 53%.  A portfolio with 50% stocks and 50% bonds fell 26%.[3]   The bonds reduced the risk by about 50%.
  • International. The international markets have done well in 2017 and their current valuations are still attractive.  The capitalization of the United States stock market is about 54% of the world markets with the remainder of the global markets accounting for 46%.   Buying stocks from the U.K., China, Japan, Australia and other countries will diversify your portfolio.[4]   From 1997 to 2016 the U.S. stock market finished in the top spot only once, in 2014.
  • Alternatives. Real estate, gold, and currencies may make sense for a portion of your account.  A weighting of 3% to 5% is recommended.  Alternatives and commodities may offer account protection and an inflation hedge.
  • Cash. Cash is good short-term investment if you’re concerned about a dip in the market.  It will help cushion your account if stocks should fall.  It will also allow you to buy stocks at a lower price.  Long-term, however, cash will lose value because of taxes and inflation.

Baseball is a meandering game with no time clock.  The stock market has no time clock either and it can continue to run indefinitely.  Grab a hot dog, a bag of peanuts, and a drink and enjoy the long-term trend of the stock market.  Play ball!

But do not overlook this one fact, beloved, that with the Lord one day is as a thousand years, and a thousand years as one day. ~ 2 Peter 3:8

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

November 28, 2017

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog.  Investments are not guaranteed.

 

[1] https://www.beyondtheboxscore.com/2017/8/5/16093390/extra-innings-time-how-long-how-many-average-rule-change, Devan Fink, August 5, 2017.

[2] Morningstar Office Hypothetical Tool.

[3] Riskalyze.

[4] Dimensional Funds 2017 Matrix Book.

Houston, We Don’t Have a Problem!

The Houston Astros recently won the World Series in an epic battle with the Los Angeles Dodgers.  The Astros have a young, exciting team led by Jose Altuve, Carlos Correa and George Springer.   These three have been the spark for the Astros all season long.

Sports Illustrated predicted an Astros World Series victory in 2014 with a cover shot of George Springer and the title, “Your 2017 World Champs.”   To add to this great prophecy, Springer was named the World Series MVP.   Collectors are now trying to cash in on this classic cover with prices ranging from the mid $200s to over a thousand dollars.  It takes time to create a winning team and the foundation for this Astros team was laid three to four years ago.

The Astros joined Major League Baseball as the Colt .45s in 1962 and they changed their name to the Astros in 1964.  My memories of the Astros were their bright orange and yellow striped uniforms and, of course, the Astrodome.  The World Series victory was 55 years in the making.

The City of Houston has had a tough year after getting hammered by Hurricane Harvey.  It was a terrible storm that displaced thousands of families and destroyed numerous properties.  The City of Houston, the Astros and JJ Watt rallied the city behind the Houston Strong motto.  #houstonstrong   The World Series win was a big one for the people of Houston.  The City of Houston needed good news and the Astros delivered.

Creating your own team will help you increase your odds of success.  Who should be on your winning team?

  • Financial Planner. A financial planner can help you create a winning formula by helping you construct a plan based on your hopes and dreams.  In addition, your planner can assist you with your investment portfolio based on the results of your financial plan.
  • Accountant. A CPA can help you in numerous ways especially if you have a complicated tax situation.   Reducing your taxes and maximizing your take home pay should be high on your list.  In addition to filing your taxes, your CPA should help you with tax planning strategies and projections so you can benefit from our tax code.
  • Attorney. An attorney can set up estate planning documents like a will or trust.  An estate plan is paramount because you want to make sure your assets go to your beneficiaries and not to the IRS.  In addition to traditional planning, your attorney can establish life insurance trusts, special need trusts and health care directives.

Your planner, accountant and attorney should work together as a team to deliver you sound financial guidance and they should make you their MVP!

Plans fail for lack of counsel, but with many advisers they succeed. ~ Proverbs 15:22

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm located in Austin, Texas.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

November 4, 2017

Are You an All-Star Investor?

The 88th Major League Baseball All-Star Game will be played on Tuesday in Miami honoring the game’s greatest players.   The all-star game has included perennial legends like Hank Aaron, Willie Mays and Stan Musial each having played in twenty-four all-star games.

Newcomers also make an impression on the game.   This year MLB has two young stars lighting up the score board; Aaron Judge of the New York Yankees and Cody Bellinger of the Los Angeles Dodgers.   Aaron Judge currently has thirty homeruns and set a record for Yankee rookies for the most home runs before the all-star break.   Cody Bellinger has twenty-four homeruns and is on pace to shatter the Dodger record set by Mike Piazza’s in 1993.

The baseball all-star game is the best sports spectacular of all the all-star games held by the major sports.  The game is comparable to the regular season format and it’s competitive.  If you need proof, watch the YouTube video of Pete Rose running over Ray Fosse in the 1970 All-Star Game.

Despite the great talents of these players they still must work at their craft.    Ichirio is in relentless pursuit of perfection on the baseball field.  He spends hours stretching and swinging and according to C.C. Sabathia, Ichirio only takes off two days out of the year, the day after the season ends and Christmas.[1]

All-Stars have down days too.  As great as these players are, they still strike out, make errors and throw wild pitches.  However, they continue to play through the dark days knowing the odds of success will be in their favor.  A strong work ethic, constant practice, and a positive outlook will soon return them to the spotlight.

Are you an investor all-star?  Do you have what it takes to be among the all-time investor greats?  I believe you do and with a few simple tweaks to your investing routine you can be an all-star investor.  Let’s look at a few ideas to help keep you in the investing game.

  • Plan. The great managers of the game of baseball all have a plan.  Tommy Lasorda, Walter Alston, and Joe Torre had a plan for each game.  Like these managers, you too should have your own plan.  A well-constructed financial plan will help you become an all-star investor.  Your plan will drive home your hopes, dreams and fears.
  • Line-Up. Casey Stengal once said, “Good pitching will always stop good hitting and vice versa.”  A strong line up is tough to beat.  The 1927 Yankees are considered by many to be the best baseball team of all time.  Their “Murderer’s Row” consisted of Earle Combs, Babe Ruth, Lou Gehrig and Tony Lazzeri all of whom are in the Baseball Hall of Fame.[2]   A strong line up of low cost, diversified index funds will keep you in the game for a long time and produce winning results.
  • Routine. Baseball players are superstitious.  Wade Boggs ate chicken before every baseball game.  To increase your odds of success you should create a routine.  Two routines I recommend are dollar cost averaging and rebalancing.  Dollar cost averaging consists of investing the same dollar amount each month into an investment.   If you participate in your company sponsored retirement, you’re dollar cost averaging every pay period.    Following this strategy with your investment accounts will pay big league dividends.   Rebalancing your portfolio will reduce your risk and keep your original asset allocation intact.  I recommend rebalancing once per year, typically in January.
  • Play. “Progress always involves risks. You can’t steal second base and keep your foot on first base”, said Frederick B. Wilcox.  To be an all-star investor you need to own stocks.   Stocks are perpetual all-stars and have outperformed bonds and cash by a wide margin.   A dollar invested in the S&P 500 in 1926 is worth $6,031 today.  This same dollar invested in a one-month US Treasury Bill is worth $21![3]
  • Review. Baseball players watch tape on opposing players and themselves to look for clues on how to gain an advantage.   Reviewing your accounts quarterly will keep you in peak form.  As you review your accounts look at winners and losers.  Do you need to make any adjustments or changes?   A quarterly review is an opportunity to make sure your investments are in line with your financial game plan.
  • Celebrate. Derek Jeter’s last game at Yankee Stadium was epic.  The Yankees and Orioles were tied in the bottom of the ninth when Jeter came to the plate.  To put a punctuation point on his fabled career he had the game winning hit and everyone in Yankee stadium erupted in applause and celebration.   As you gain success as an investor take some time to enjoy the fruits of your labor.

Get your game on and become an investing all-star.  I know you can do it!   Your talent mixed with discipline, practice and patience will give you major league results!  Batter up!

I can do all this through him who gives me strength. ~ Philippians 4:13

“Ruth, Gehrig, DiMaggio, Mantle … Costanza?!” ~ Jerry Seinfeld

Bill Parrott is the President and CEO of Parrot Wealth Management and is a big fan of Major League Baseball.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

July 8, 2017

Note. Your investment results may differ than those highlighted in this post.

 

[1] https://www.nytimes.com/2015/10/04/sports/baseball/ichiro-suzuki-aiming-at-age-50-but-first-3000-hits.html?mcubz=1, David Waldstein, October 3, 2015.

[2] https://www.fold3.com/page/629784704_1927_new_york_yankees_murderers_row#description

[3] Dimensional Fund Advisors Matrix Book 2017.