This just in: CEO Chris Shuba in Financial Planning

On this episode of Math Men in the Markets, Joe Mallen, CIO, and Nyle Bayer, CMO, discuss various investment selection processes for creating portfolios and how investors can think from a general manager’s perspective. Spring ushers in America’s favorite pastime with the start of baseball season, and the strategy behind the game has some surprising parallels to investing strategies. Baseball has evolved into an economic science, and selecting what players best fill various positions in the modern era is strikingly similar to the approach many uses towards investing.

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Helios Quantitative Research · How Baseball Can Explain Investing
  Shownotes: 2:10 – “There’s kind of two roles of an advisor, investment manager, whatever you want to call it, in terms of picking an investment portfolio for a client. You have the positioning, which we’ll call the asset allocation, and then you have the selection of your position players, which are your funds, your stocks, whatever you want to fill in that portfolio with — very similar to a baseball team…” (Joe Mallen) 3:30 – 3:42 – “The industry has really adopted this idea that you need a certain number of positions, or at least a minimum number of positions. You need diversification and any asset that really has a positive return that’s counter-correlated to each other makes up a portfolio.” (Joe Mallen) 4:33- 4:45  – “You’re going to have positions in your portfolio that might serve a unique strategy during maybe when you originally set it up, but you are going to have to make changes, and you won’t be giving up the value…but it’s changing.” (Nyle Bayer) 6:33 – 6:38 – “You’re really doing yourself a disservice by trying to hit home runs across every position within your portfolio.” (Joe Mallen) 6:45 – 7:49 – “I see defense just like a beta, and offense is the alpha, and if you focus just on alpha, just go after guys who swing the bat hard, you might be lacking severely on the defensive side of making sure that you’re not having drawdowns when the other team comes up to bat.” (Nyle Bayer) 11:16 – 11:52 – “A better strategy is to really think long term. Think over the course of a season or a year, a market cycle, and building a resilient, tight portfolio that’s going to act the way you want it to over the course of that season, and that’s what I think the most important thing is. So you pick position players that do their job and judge them based upon their job within a portfolio, not based upon the state of returns on a one, three, five-year basis because you’re going to drive yourself nuts. You have to know that not every single position in your portfolio is going to outperform its benchmark every single time period.” (Joe Mallen) 12:51 – 13:00 – “That’s what really the whole point of this conversation is: Can we make our investment portfolio more human for those clients that don’t necessarily get investing? That’s where this analogy is really good because people get now that a baseball team just isn’t power hitters. It’s really a bunch of different positions that are designed to do well…” (Joe Mallen)

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If you would like to receive the Helios Market Report delivered straight to your inbox every Sunday night, enter your info on the sidebar to the right. Follow Joe on twitter @joseph_mallen Follow Nyle on twitter @nylebayer