{"id":5489,"date":"2012-12-28T08:32:07","date_gmt":"2012-12-28T16:32:07","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=5489"},"modified":"2016-12-21T07:30:48","modified_gmt":"2016-12-21T15:30:48","slug":"five-investing-rules-from-baseballs-casey-stengel","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/five-investing-rules-from-baseballs-casey-stengel\/","title":{"rendered":"Five Investing Rules from Baseball’s Casey Stengel"},"content":{"rendered":"

Modern investing owes a lot to behavioral finance research, the scientific study of how we make choices, particularly about money.<\/p>\n

Nevertheless, and with apologies to baseball great Casey Stengel, investing can be pretty well understood by thinking about just five of the longtime manager’s classic quotes, from the\u00a0Baseball Almanac<\/a>:<\/p>\n

\"Casey<\/a><\/p>\n

1) “Been in this game one-hundred years, but I see new ways to lose \u2019em I never knew existed before.”<\/strong><\/p>\n

Money managers counsel against owning a stock you doesn’t understand. Then they proceed to recommend dozens of shares that almost nobody understands, including themselves. Small investors try to reduce complexity by owning only a few stocks of well-known brands, usually based in their own country. Worse, they hold cash and shares in their own employers’ firms and nothing else. Meanwhile, increased complexity has led the\u00a0big pension funds to hire outside guns to keep track<\/a>\u00a0of it all.<\/p>\n

Bottom line:<\/strong>\u00a0You can know your own business inside out and still lose your shirt overnight. Owning someone else’s business is orders of magnitude more complicated.\u00a0Diversify with indexes<\/a>\u00a0and your risk subsides.<\/p>\n

2) “Can’t anybody here play this game?”<\/strong><\/p>\n

Mark Hulbert, the newsletter tracker, recently wrote about how the\u00a0newsletters were “beating up” on hedge funds<\/a>\u00a0this year, returning 9% through November vs. just 5.5% for the fancy funds. Surely he must realize that the S&P 500 returned 12.61% in the same period, right? Meanwhile,\u00a0The\u00a0Wall Street\u00a0Journal’s<\/em>\u00a0David Weidner points out that a lot of stock pickers followed in the media took a bath in 2012. You can blame volatility, if you like, but volatility is not exactly news. In fact, up-and-down markets are supposed to favor the gurus. So\u00a0why are the pundits’ picks no better than flipping a coin<\/a>?<\/p>\n

Bottom line:<\/strong>\u00a0You can lose a lot of money following gurus. Once you blow through your capital, there’s no easy way back.<\/p>\n

3) “I don’t like them fellas who drive in two runs and let in three.”<\/strong><\/p>\n

If you’ve ever seen a mutual fund prospectus, you’ve seen the performance table. It spells out how well the fund has done over several time frames, usually year-to-date, one year, three years and five years. Then big database companies will average comparable funds, giving you a look at “typical” performance. Only it’s not typical. The averages suffer from\u00a0a statistical quirk known as “survivorship bias.”<\/a>\u00a0By eliminating the funds that go bust, the remaining funds contribute to a rising average return.<\/p>\n

Bottom line:<\/strong>\u00a0Remember that averaged returns are goosed up to look good by conveniently forgetting dead funds that have closed down. A passive fund, however, will be accurate since it reflects the benchmark, not a selection of winners.<\/p>\n

4) “Managing\u00a0is getting paid for home runs someone else hits.”<\/strong><\/p>\n

Parents understand this moment intimately: After raising, feeding, clothing and educating a child, at some point he or she gets up, leaves your home and begins to make adult decisions well beyond your view and without the slightest thought of your guidance or approval. Awful, right? And yet, if you did your part, totally harmless. Yes, your kids will make some bad choices. That’s what life lessons are about.\u00a0Investing\u00a0is no different. You’re much better off saving more and paying attention to asset classes than trying to micromanage the past.<\/p>\n

Bottom line:<\/strong>\u00a0The\u00a0less you pay attention to the details of the market’s moves, the more likely you are to collect the gains<\/a>\u00a0that occur over time.<\/p>\n

5) “Most ball games are lost, not won.”<\/strong><\/p>\n

Markets\u00a0go up and markets go down. You can’t affect it in any way, and least of all by watching. The trick,\u00a0as Charley Ellis points out<\/a>, is to make fewer mistakes.<\/p>\n

Bottom line:<\/strong>\u00a0Passive investing and rebalancing<\/a>\u00a0is as close to a free lunch as you will find in your investing life.<\/p>\n","protected":false},"excerpt":{"rendered":"

Modern investing owes a lot to behavioral finance research, the scientific study of how we make choices, particularly about money. 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