October 27, 2023

For Philadelphia sports fans, it seems like every team, every season is a battle between “we are so back” and “it’s over.”  The 2023 Phillies have been no exception.  Let’s remember how this season has unfolded…

Start of season: Harper and Hoskins were out, and first base was a mess.  Trea Turner – after penning an 11-year, $300MM deal – was playing the worst ball of his career.  The team was held together by young clubhouse members being paid pennies on the dollar compared to the All-Stars.  Pitching was lackluster but reliever Craig Kimbrel was, thankfully, a bright spot.  And, Castellanos was hot for the first half… thank goodness!

By midseason, the Phils were fightin’ for the top of the Wild Card spots.  Harper had the quickest Tommy John’s recovery in MLB history and stepped in to plug the hole at first base.  That allowed Schwarber, arguably one of the worst outfielders in the MLB at the time, to move to DH.  Despite having the lowest batting average in the league, he came alive after Schwarberfest  and hit more home runs than singles.  Newly signed Michael Lorenzen hit a no-hitter in his home opener wearing his now-legendary Vans.  Turner began his comeback march after a standing ovation sparked by social media… an uncharacteristic showing of support from the notoriously tough Philly fans.  By the end of August, the Phils had registered 14 games batting over .500 with the most ever home runs in franchise history.

Now they’re in the post-season.  After handling the Braves, they are playing in the NLCS and I’m dragging my kids out of bed in the morning after staying up too late to watch the games.  Are they on the road to the World Series?  Only time will tell.  But I think there are lessons here for cautiously optimistic investor…

Maintain the Long-Term View

With 162 games, baseball could be the longest season in sports.  Players have to be in it for the long haul.  Investors, though, can be tempted to focus on the short-term which hasn’t been pretty.  The period from 2020 to now has been the most difficult investing climate of my career.  Still, I know that one day, we’ll look back at this period and see little more than a “blip” on the radar.  Focus on the season, not the game.

Fundamentals Matter

Over the past three years, it seems the fundamentals of investing no longer matter.  Bonds were supposed to cushion portfolio losses in tough times, but bonds served up losses right alongside stocks in 2022.  Diversification was supposed to be a winning formula but, this year, crazy returns by the “magnificent seven” have led to the S&P 500 index being more concentrated than ever.

My brother played in the Cardinals minor league system, so I grew up in a baseball family.  I could not count the hours Justin spent hitting the soft toss machine in our basement.  It never made sense to me… how could hitting a slow, tossed ball prepare you to hit splitters, sliders and fastballs?  What I know now applies to investing and baseball alike… fundamentals and technique matter even when it seems like they don’t. 

Invest Over a Long Time in a Diversified Portfolio

In baseball, a fat pitch is the one a batter can’t miss.  It comes at just the right speed and crosses the plate at just the right spot.  But when a batter is behind in the count, they are forced to swing at bad pitches.  Chasing an outside pitch breaks their swing fundamentals and diminishes their power. 

A long-held, diversified portfolio is the investor’s “fat pitch.”  Fortunately, in investing, we can’t get “behind in the count.”  Since we won’t be called out, we can wait patiently for fat pitches.  Like a baseball game without a three-strike rule, it can be painfully boring to stick it out when it looks like every day trader in the country is smoking the performance of your long-held, diversified portfolio.  But stick with it and hit the easy pitches.  It may not be glamorous, but it will probably get you on base.

Patience and Perseverance are Rewarded

The recent performance of the S&P’s ‘magnificent seven’ can tempt us to “load the bases” with AI and Info Tech.  It’s easy to forget that darling NVIDIA fell from the mid $330s in late 2021 to about $115/share by mid-October 2022.  Like the Philly fans ovation of Trea Turner during the worst performance period of his career, there’s something to be said for sticking with investments even when things look bad.  I suppose they could have sold Turner for less than they invested in him and about bought another super star instead.  In fact, technically, they could have forfeited the rest of their season after their lousy start.  But they stood by Turner even as he failed to perform, and they kept returning to the ballpark day after day even when a World Series run looked like a pipe dream.

This has been a historically difficult period for investors.  The Wall Street Journal reports that the commonly used 60/40 portfolio experienced its worst 12-month performance since at least 1937.  The 60/40 portfolio has been the “fat pitch” for retirement savers for generations.  That leaves us with a choice.  Should we swing at that outside pitch by going all in on Google, Meta and NVIDIA?  Or should we sit tight in the box and wait for the opportunity to rely on our fundamentals to get us back in the game?

Many tried and true investments are in a slump.  Should we cut our losses and sign a contract with another superstar?   Or, should we be like the Phillies fans when they gave Turner that unexpected standing ovation?

Align’s investment team is working on a new blog post that I’ll be excited to share.  If you don’t already follow us on social, you might want to connect with us now.  Until then, I want you to know that WE KNOW these last few years have not been easy for our clients.  Like you, we wish returns were higher, inflation was lower and the market outlook was more certain.  But we can do hard things together.  We can focus on the long game, stick to the fundamentals, stay diversified and persevere. 

If you have questions or just want to talk, reach out.  We’re in the batter’s box with you!

Go Phils!

Author’s Note:  Of course, by now we all know that the Phillies will not make a 2023 World Series appearance and they came up short in the NLCS.  So, is the article below still relevant?  I suppose it’s a matter of how a person classifies success.  As for me, I think theirs was a successful season of enduring and overcoming even if we won’t be watching them in November.  And the same is true for investors.  Success is reflected in the journey, not in the high point.  I hope you’ll still read on.  As for the Phils, there’s always next year! 😊