Lawrence Peter Berra, known to baseball fans and other admirers around the world simply as Yogi, passed away on September 22, 2015. He was 90 years young.
In a pair of blogs published in 2014, I linked some of Yogi’s famous proclamations—gems such as “If you don’t know where you are going, you’ll end up someplace else” and “Ninety percent of the game is half mental”—to investing.
I’m hardly the first to appreciate Yogi’s wisdom, or to apply his insights to a topic beyond the baseball diamond. A search of the term Yogi Berra in Amazon.com’s book section returned an astounding 1,419 results. Clearly my appreciation for the man who wore number 8 as the catcher for the New York Yankees is shared by many—and deservedly so.
Yogi served as a gunner’s mate at the Allied invasion of Normandy in June 1944. He went on to become a 15-time All-Star, a three-time American League Most Valuable Player award winner, and a ten-time World Series champion.
In tribute to the late, great ballplayer-philosopher, we’re pleased to republish all his proclamations from my previous blogs. We miss you already, Yogi.
“It’s tough to make predictions, especially about the future.”
The world is filled with market forecasts that rarely come true. Unfortunately, investors on their own often base investment decisions on such forecasts, which can do more harm than good. Advisors are the coaches who can help keep clients from making undisciplined and emotional decisions based on headlines and short-term market actions.
“Ninety percent of the game is half mental.”
One of the biggest catalysts that veer clients off course is emotion, namely, when greed and fear swing to extremes. The desire to be “in the know” or to ferret out uncertainty almost always intensifies an emotional situation. Advisors help clients know themselves, establish clear goals, and put safeguards in asset allocations to account for biases.
“The future ain’t what it used to be.”
As the boilerplate disclaimer states, “Past performance is not a guarantee of future results.” Despite its ubiquity, very few investors heed its caution. Our research revealed that even successful actively managed funds experienced long periods of inconsistent returns on their road to outperformance. When it comes to evaluating an investment, it’s more advantageous to assess a strategy based on its potential to generate excess returns rather than on its past returns.
“If you don’t know where you are going, you’ll end up someplace else.”
As any financial advisor knows, the first step to success is to know what your clients are working toward. For many clients, that includes saving for retirement and paying for college and major purchases. However, in the digital age, the biggest hurdle between your clients and their investment goals is swirl. Advisors can help clients set clear goals, creating solid plans and coaching them to keep their eyes on the ball.
“We made too many wrong mistakes.”
Investing mistakes are all too easy to make, but you can right a wrong by learning from the past. Wrong mistakes are ones that get repeated so often that you can extrapolate patterns from them and find that they are often rooted in behavior. A goals-based asset allocation plan that is regularly rebalanced is a strategy that can help clients avoid common investing mistakes.
“A nickel ain’t worth a dime anymore.”
If every investment decision comes with a trade-off, so, too does indecision. Money that sits on the sidelines is subject to a slow deterioration by a quiet culprit called inflation. Our research found that over 30 years, an average inflation rate of 3% eroded purchasing power by more than half. Investors who stay the course do considerably better, on average, than those who engage in market-timing or trade frequently.
“In theory, there is no difference between theory and practice. But in practice, there is.”
Theory and practice often clash with each other. In theory, we’re all rational investors who make logical decisions in an efficient market. In reality, we’re rash, we chase performance, and we throw in the towel too quickly when things look dicey. The lack of emotional discipline is often the obstacle that keeps the average investor from reaching his or her long-term goals. Advisors play an instrumental role in bridging the gap between theory and practice.
“If you can’t imitate him, don’t copy him.”
It’s not uncommon to see old strategies tweaked and repackaged as improvements on old ideas. Trouble arises, though, when clients buy into a “better” idea, such as smart beta, under a misunderstood premise. The trade-off between risk and return hasn’t changed, nor has the definition of indexing. Advisors can help clients evaluate such investments in the appropriate context, as actively managed strategies.
Notes:
All investing is subject to risk, including possible loss of principal.
Diversification does not ensure a profit or protect against a loss.
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Quotes are from Yogi Berra, 1998. The Yogi Book. New York: Workman Publishing; and Yogi Berra Quotes. Accessed September 23, 2015, at http://www.brainyquote.com/quotes/quotes/y/yogiberra141506.html
Fran Kinniry
Francis M. Kinniry is a principal in Vanguard Investment Strategy Group, whose primary responsibilities are capital market research, portfolio design, development and implementation of customized investment solutions, investment market commentary, and research. The group’s proprietary research on investment, economic, and portfolio management issues has been published in leading academic and practitioner journals. It also is responsible for establishing Vanguard’s investment philosophy, methodology, and portfolio construction strategies. Mr. Kinniry has worked extensively with ultra high net worth families and institutional investors, creating customized portfolio solutions for their investment needs. He also initiated the Vanguard Investment Counseling & Research department and Vanguard Asset Management and Advisory Services. Before joining the company in 1997, he was a partner and senior portfolio manager for Executive Investment Advisors, Inc., an institutional asset management firm. Previously, he was a portfolio manager for H. Katz Capital, a venture capital and hedge fund manager. Mr. Kinniry has more than 20 years experience in the industry and is a regular speaker on investment, economic, and portfolio management issues. He is a Chartered Financial Analyst® charterholder and earned his M.B.A. and bachelor’s degree from Drexel University.