Like many of you, I am sure, I’ve always been a huge baseball fan—whether as a player myself or following a Major League Baseball team.
My “fandom” goes back to about age 6, when I started to collect baseball cards and became a “Phillie Phanatic” (though that character did not exist way back then for fans of the Philadelphia Phillies). I still have much of my baseball card collection, and, despite living in the Philadelphia suburbs, many of the cards I coveted most were those of the stars of the dominant New York Yankees. I still have a few of those.
The Phillies had some great teams back in the 1950s and 1960s, led by the “Whiz Kids” and future Hall of Famers Robin Roberts and Richie Ashburn, but never won the World Series when I was following them. In fact, they played a record 77 consecutive seasons before they won their first World Series in 1980. They are still remembered for one of baseball’s most notable collapses in 1964. The team was 90-60 on September 20, with a six-and-a-half-game lead in the pennant race with 12 games to play. The Phillies lost 10 agonizing games in a row and finished one game out of first place.
Fittingly, my family moved to the New York area the next year, where I soon embraced the New York Mets, especially when pitcher Tom Seaver burst on the scene with a 2.76 ERA and 16 wins as a rookie in 1967. The Mets won the World Series in 1969 and were forever known as the “Miracle Mets,” as that was their first winning year as a major league franchise.
In 1977, the Mets did the unthinkable and traded Seaver in midseason. Many fans, myself included, rebelled. From then on, I was a New York Yankees fan, which was not too hard with the never-dull teams that included Reggie Jackson, Thurman Munson, and manager Billy Martin. The Yankees won two World Series, in 1977 and 1978, before a long decline into the mid-1990s, when amazing success was achieved by teams led by shortstop Derek Jeter and manager Joe Torre. Coincidentally, I ended up working indirectly for the Yankees, doing public relations and advertising work for the team’s new broadcasting venture, the YES Network, in 2001 and 2002.
Fast forward to the present-day Yankees team.
Last year, they surprised everyone by coming within a game of the World Series, losing the ALCS to Houston in seven games. Four new stars emerged: outfielder Aaron Judge, who had 52 home runs; slugging catcher Gary Sanchez; shortstop Didi Gregorius; and starting pitcher Luis Severino.
This year they added outfielder Giancarlo Stanton (who beat out Judge with 59 home runs last season for Miami) and two sensational rookie infielders, Miguel Andujar and Gleyber Torres. The team started out 9-9. Since then, they have been on a tear and own the best winning percentage in baseball at .685. With a third of the season completed, they are on a pace for 111 wins.
What has been remarkable about this season has been the ongoing rotation of players taking over leadership of the team at various points of the year. Gregorius is a perfect example, having had an MVP-worthy month of April, then tailing off throughout the month of May, only to have Torres go on his own hot streak.
To paraphrase longtime Yankees radio announcer John Sterling, “That is what great teams do. They always have someone stepping up and picking up the rest of the team.” If five players are playing just OK, another four will start performing superbly. It is an extremely well-balanced team in that respect, where periods of individual inconsistency do not end up hurting the overall winning record of the team. The sum of the parts overcomes individual performance during the course of the season.
As I started thinking about this week’s article, I was struck by the similarity of the Yankees’ 2018 “story” and some principles of sound portfolio construction.
Financial advisors we have interviewed for Proactive Advisor Magazine frequently talk about using a combination of actively managed strategies that are meant to work together (with different performance characteristics) as a cohesive portfolio over full market cycles. As one advisor puts it,
“A cornerstone of my active management approach is offering a very wide potential combination of diversified strategies. In line with this overall risk-managed active approach, l will generally use several different noncorrelated strategies, in several different asset classes. While not every strategy ‘will fire on all cylinders’ at the same time, that is exactly the point.”
Flexible Plan Investments’ president, Jerry Wagner, has often written about this same aspect of diversification. He has said, “If every strategy in a portfolio is going up or down at the same time, there is a high probability that the portfolio is not properly diversified.”
The ultimate point? As our advisor noted, when strategies are “objectively quantified” and work in combination in a well-diversified portfolio, “emotion and ego can be put aside for the most part, and clients can more freely allow their strategies to perform as designed, without constant second-guessing.”
While it is hard for baseball fans, and investors, to not get caught up in the emotion of day-to-day action, it is a “long season” for both. All that really counts is achieving their respective end objectives.
Quick market recap
The U.S. equity market finished last week on a very strong note, following the release of the latest employment data on Friday. This came after some strong selling earlier in the week, ostensibly based on concerns over European instability, particularly in Italy; the continued threats of a trade/tariff war; and uncertainty about ongoing discussions with China on a range of issues.
The Dow Jones recovered enough on Friday to post a small weekly loss of 0.5%, while the S&P 500 was up 0.5% and the NASDAQ Composite gained 1.6%. The Wall Street Journal noted, “Trade tensions continued to simmer after the U.S., Canada, Mexico and the European Union traded barbs and threats over the Trump administration’s decision to move ahead with tariffs on steel and aluminum.”
The month of May ended up with very decent performance, paced by the NASDAQ 100’s 5.5% gain and 6.1% for the Russell 2000. The Dow was up 1.4%, and the S&P 500 saw an increase for the month of 2.4%.
Despite this strong May performance, the broader market, as represented by the S&P 500, continues to trade in a channel—though it is generally a positive that the “new range” remains above the 50-day moving average.
FPI Research update
The NASDAQ breached its all-time high this week. After a down week, the Dow Jones Industrial Average rose Monday morning, as traders shook off political and economic uncertainty around the world. The S&P 500 is at its highest point in months. Oil prices are down due to the prospect of Saudi Arabia and Russia’s potential decision to ramp up oil production, and gold is up slightly on the same news.
Flexible Plan’s Self-adjusting Trend Following (STF) strategy, an active equity strategy, has been a strong performer over the last month, up around 6%. The STF strategy adjusted its exposure from 2X to 1X in the early months of 2018 on signals of decreased momentum and increased risk in the markets. Since then, however, the strategy had been increasing exposure to equities back up to 2X, the level it maintained in May. The increased exposure has enabled the strategy to outperform both the NASDAQ and S&P 500 Indexes in May on both a one-month and three-month basis.
Fixed-income markets are facing uncertainty, chiefly due to rising interest rates, which make it more costly to borrow. After the recent economic report announcing a new unemployment level of just 3.8% and over 223,000 jobs created in May, investors have turned optimistic and are beginning to pour money back into assets riskier than government bonds. The fixed-income environment has been difficult to navigate this year due to uncertainty in political and economic events, as well as strong but volatile performance in the equity market.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Inherent in any investment is the potential for loss as well as profit. A list of all recommendations made within the immediately preceding twelve months is available upon written request. Please read Flexible Plan Investments’ Brochure Form ADV Part 2A carefully before investing. View full disclosures.