What the SF Giants can teach us about financial planning and investments

Nov 5th, 19:01 by Mike Bergines in Financial Planning and Investments and Portfolio Theory If you are not a baseball fan, or if you hate sports analogies, I apologize, but hear me out – I believe that you will take something valuable away from this blog.

In the spirit of full disclosure, I am a lifelong SF Giants fan – I distinctly remember my Dad and me pulling our down jackets out of storage in the middle of July so that we could go to Candlestick Park and freeze with 5,000 other crazy people to watch the Giants play. We have been waiting for a SF championship for 52 years! But what makes 2010 so satisfying for Giants fans, after coming so close in ’62, ’89 and ’02, is as much HOW they won as it was THAT they won.

The story of this team can provide inspiration for many people who are not Giants fans, however, including financial planners and those who give investment advice! I look at the Giants and their year, and I see multiple parallels to good investing and financial planning.

#1) The Giants team is built around pitching and defense. In baseball, good pitching and defense means you’re always in the game. The investing and planning parallel to good pitching and defense is a conservative investment approach and risk management. With a diversified portfolio and good risk management, you are “always in the game” – you will rarely have a “big loss”. That provides valuable peace of mind and increases the chances of long term success. As I have said many times, in investing for the long haul, young professionals often win by not losing. The Giants often won by not losing as well.

#2) The strong foundation of pitching and defense means that the Giants can win without any offensive superstars. If the other team has trouble scoring, you don’t need a lot of offense to win. And in investing, if you don’t have any big losses, you don’t need superlative investment returns to build wealth. This approach is not as sexy as having a star in your lineup like Barry Bonds, Willie McCovey or Willie Mays, to be sure. But, apparently, it’s highly effective. None of those superstars won a championship in San Francisco.

#3) Even though the Giants had no superstars, they had many heroes – every night, someone else was providing the offense needed to win. Having many heroes on a baseball team is like having a well-diversified investment portfolio. Not all investments do equally well within a portfolio year-to-year, but all investments play a role, so that over the long run, a portfolio grows without unnecessary risk and volatility. But with a well-diversified portfolio, investments will perform well when you least expect them to (e.g., Cody Ross, the NLCS MVP, and Edgar Renteria, the World Series MVP), more than compensating for those that you expect to perform well, but don’t (e.g., Pat Burrell).

#4) Whether you are talking about a baseball team or a financial planning and investing program, you need a well-reasoned strategy. Brian Sabean, the General Manager of the Giants, saw the Giants' young pitching talent and decided to build around it – it has affected which players the team acquires and how much they pay them, often to the criticism of fans who didn’t understand the strategy. Sabean teaches financial planners and investment managers that a strategy based on the unique nature of your assets – a strategy that influences everything you do – will ultimately lead to success. The Financial Planner's clients (or a team’s fans) may not always understand it at first, but they will benefit from it.

#5) Baseball teams and investors need thoughtful, confident and active managers. Bruce Bochy, the manager of the Giants, was heralded throughout the playoffs for “pulling all the right strings” and clearly outcoaching Texas’ more passive manager. Investment managers have to execute confidently and not hesitate to change investments as conditions dictate. Mediocre financial planning and investment advisors often tell clients to “stay the course” in the face of structural changes and different conditions – usually because they don’t know what to do or don’t understand the changes.

#6) Good general managers, of either baseball teams or investments, will not get everything right, but their mistakes won’t kill them. Brian Sabean is not without his failures, the most obvious one being the long-term signing of Barry Zito, who didn’t perform well enough in 2010 to even be included on the Giants' 25-man playoff roster. Sabean has made other mistakes as well, but done that caused the Giants to suffer. A good investment manager will not get everything right 100% of the time, but he won’t put himself or you into a position to have that mistake, or any mistake, cost you dearly.

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