Editor’s note: This is the first in a two-part series about the intersection of baseball and investing. Part two will focus on the evolution of the game.
Many of the families I advise are first-generation wealth creators. They’re accomplished, analytical and deeply knowledgeable about their fields. Yet investing has its own language and principles. When I began learning about investing, baseball gave me a familiar way to understand new concepts.
Baseball and investing both reward patience, discipline and sound judgment over long periods. Both also invite overreaction, emotional decisions and misplaced confidence in a compelling story. The comparisons are not exact, but they can make important investment principles easier to grasp.
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These five lessons from baseball illustrate how successful investors might think through uncertainty, risk and long-term decision-making.
1. Volatility and the consistency of a hitter
Which stock is better, one that returns 5% every year without fail, or one that averages 8% a year but is sometimes down 20%? The answer depends on the investor’s objectives, risk tolerance and ability to remain committed through difficult periods.
Baseball poses a similar question. Which hitter is better, the consistent singles hitter or the player who bats .200 with 45 home runs? The power hitter may create more total value, but relying on that hitter can be uncomfortable.
A higher-returning investment may come with a more uneven path. For some investors, that path is acceptable. For others, the emotional cost of the volatility may cause them to exit prematurely. The quality of the outcome is not measured solely by the average return, but also by whether the investor can remain committed through the path required to earn it.
2. Lineup and portfolio construction
A baseball lineup is a portfolio in uniform. A manager doesn’t want nine identical hitters. A good lineup needs different ways to score: Players who get on base, players who hit for power, players who can run, players who handle left-handed pitching.
Portfolio construction follows the same logic. The goal is not to own the same exposure in 10 different wrappers. It is to combine investments that serve distinct strategic purposes. Some may support growth. Some may provide stability. Others may help protect against specific risks or economic environments.
Diversification can be more illusion than reality if every part of the portfolio depends on the same underlying conditions. A lineup full of power hitters may look dangerous until it faces a pitcher who can exploit weaknesses across the group. The same goes for a portfolio. True construction requires understanding the purpose of each asset.
3. Long seasons and time horizons
Do you bench a great hitter who starts the season 0 for 20? Even great players have bad weeks. The fact that a hitter has struggled over a small sample does not mean the player can’t hit.
Investing demands the same discipline and perspective. If an investment is down 10% in a month, selling may feel like action, but action isn’t judgment. A short period of poor performance may be meaningful, or it may simply be part of the range of normal outcomes.
A smart baseball fan will look at an April slump and recognize that there are months of the season left to play. Investors often know the same thing intellectually, but losses feel different when they involve family capital, future goals and real consequences. Long-term thinking is easy to admire and hard to practice.
4. Fundamentals matter
So, do you bench the hitter in a slump or sell the investment? Patience isn’t always the right response. Sometimes the underlying facts have changed. This is where fundamentals matter.
If a hitter is struggling because of an injury, diminished bat speed or a visible change in approach, the slump may signal a deeper problem. If the hitter is making hard contact but just getting unlucky, patience may be the better response.
With investing, price movement provides information, but it isn’t everything. If an investment declines because the underlying thesis has changed, reassessment is appropriate. If the decline reflects temporary sentiment or a broader market selloff, the fundamentals may support staying invested.
The same is true on the upside. If an investment is up significantly, but no one can explain why, enthusiasm shouldn’t replace analysis. In baseball, a bloop single still counts in the box score, but it doesn’t tell you much about whether the hitter is seeing the ball well. In investing, not every gain is evidence of wisdom.
5. The pull of the narrative
Baseball is full of stories. A player is clutch. A team has momentum. A veteran knows how to win. A young prospect has changed the energy in the clubhouse. While these narratives make the game more enjoyable, they don’t always have predictive value.
Markets have their own narratives. One commentator can make a compelling case for a bear market. Another can make an equally polished case for a bull market. Both might use data. Both might sound confident. Both might be wrong.
The danger is when the story becomes more persuasive than the evidence. In baseball and investing, the disciplined approach is to ask what the story explains, what it ignores and whether it should change your decision.
The discipline of staying invested
Baseball and investing both reward a certain temperament: Patience without passivity, confidence without certainty, and discipline without rigidity.
Whether evaluating volatility, building a portfolio, resisting the urge to react to short-term results, focusing on fundamentals or looking past compelling narratives, the common thread is disciplined judgment. The objective isn’t to eliminate uncertainty. It’s to make better decisions in the presence of it.
The season is long. The fundamentals matter. The story isn’t always the evidence. And often the hardest part is staying disciplined long enough for a sound process to work.
Next up: Recognizing when the environment changes.