But if you knew where the ball was going, you would need only a few players to be successful: a pitcher, a catcher, maybe a first baseman and a fielder. You could just put the fielder exactly where the ball was going to go and you’re in good shape.
The problem is that we don’t really know where the batter is going to hit the ball. We may know he likes to hit down the third-base line more than to first, but we don’t know where he is going to hit the next ball.
That’s why we put players all over the field because we know someone will be close no matter what.
That’s diversification. You spread your assets out so you will have some assets in the right place at the right time. And just like baseball, some assets won’t be doing much of anything.
You never see the TV honed in on the left fielder if the ball has been hit to right field. That’s because he’s not doing much. He is sitting around waiting for his opportunity.
In the investing world you can’t be diversified without having some of your assets sitting around not doing much. It’s part of the game, just like baseball.
Great baseball coaches understand this and are perfectly fine watching most of their players, on any given play, do nothing. If a ball is hit to the shortstop and he throws the batter out at first, four people are involved in the play. Two others have backup responsibilities, and the remaining three players could just as soon be taking a nap.
Over the years, I have found that investors don’t really like to see their players taking a nap. They want them to be doing something helpful. If their opponent has hit the ball up the middle three times in a row, these people want to take their whole team and place them in the middle of the field to stop that from happening again. Then, of course, the batters will start hitting the ball down the line and no one will be there.
In investing, no one knows where the next ball will be hit. You may guess right a few times, but in the course of an entire game it is enormously risky to use that strategy.
Great coaches spread out their team and give the players and assigned area in which to work. Great investors do the same with their investments.
It’s not easy, but winning rarely is.
It takes knowledge and wisdom – two different things – and a commitment to stick with your game plan, even during those periods in the game when it is not working.
Those characteristics are what separates the champions from the rest of the field. Be a champion.
Scott Reed is CEO of investment advisory firm Hardy Reed in Tupelo. Contact him at (662) 823-4722 or firstname.lastname@example.org