It’s Hard to Steal Second Base…

“It’s hard do steal second base with your foot on first!” This is a famous quote by Ty Cobb, a major league baseball player from the early 1900s who was known for his base stealing ability, among other things. Notably, he was among the first group of players to be voted into the Baseball Hall of Fame. The risk of taking a big lead off of first base to steal second is a big part of what made his base stealing abilities legendary.

So where am I going with this, you might ask? Simple. In conversations with many friends, acquaintances, and clients, I’ve left those talks with a basic thought. People want a 10-15% annual return on their investment portfolio, but they can’t handle the day-to-day stock market volatility in order to achieve that return. The volatility of 2022 proved that.

One of the biggest problems that I see is the media influence that affects investors without them knowing it. In chapter 24 of my book, Castles & Moats, I talk about these influences. A perfect example is when you’re driving home from work and the radio newsperson says something like “The Dow Jones Industrial Average (DJIA) was down 50 points today on trading of blah, blah, blah.”

You might think this doesn’t affect you, but I can promise you that it does. When I’m talking with groups of people, I often ask them, “How many stocks are in the DJIA?” And I’m amazed at how many don’t realize that the number is 30 chosen stocks. 30! General Electric was the last company from the original group of companies that made up the DJIA in 1896, but they were replaced by Walgreens in 2018. I ask you to consider if there is any correlation between a diversified company like GE and a drug store chain like Walgreens?

Many advisors lean on two distinct Nobel Prize winning studies, the first being in Chapter 21. The concept is called Modern Portfolio Theory, but you probably know it as “asset allocation.” When you see those pie charts of different asset classes in your 401(k) plan, that’s Modern Portfolio Theory at work.

In Chapter 25, I write about investor behavior, a study which won a Nobel Prize in Economics for detailing how psychological, emotional, and social factors affect an investor’s emotional tolerance for risk and volatility. An here’s an amazing fact: The man who won this study, Daniel Kahneman, was a psychologist – not an economist!

A phrase in my world that I think is grossly overused is “wealth management.” Why? Because a person with over $1,000,000 might be considered to wealthy, while another person with just $200,000 might be considered equally wealthy. In the “Moats” section of my book, I discuss all types of insurance planning and the associated products associated. I also mention the phrase “Risk Management.”

So, you might think that “Risk Management” is strictly for your moat, and “Wealth Management” is reserved for your Castle. However, I’ve grown to understand and share with my clients, that in order to have a successful investment portfolio for retirement, we must manage the risk in order to achieve the wealth!

In almost all sports, successful teams have both a great offense and an equally great defense. The same theory applies to personal investment strategies in the retirement/distribution phase of your life.

In closing, the takeaway is this: risk management is equally as important as wealth management and you can’t have one without the other. If you would like to learn more, email me at brian@briancarden.com. I’d love to hear from you!

Many thanks,

Brian

* Investing involves risk including the potential loss of principal. It is not possible to invest directly in an index. Examples are intended for illustrative purposes only and may be not indicative of your situation. Individual results may vary.