Last night I watched the MLB Home Run Derby contest. I always find it the most entertaining part of the All Star festivities. Last night I saw the rookie, Aaron Judge, crush one home run after another, seemingly for the entire 5 minute time allotment. The 6’ 7” athlete was doing it effortlessly, with 500 foot bombs and shots that bounced off the roof. . . It was impressive.
It doesn’t feel like the market has been hitting home run after home run, but stocks hit the bottom of the Financial Crisis over eight years ago and really haven’t looked back. We have hit some slumps along the way, but our batting average since 2009 has been pretty impressive overall. This last quarter was no exception, with the S&P 500 up over 3%.
That truly differentiates the spectacle of the home run derby from a real baseball game. The derby gives you one goal, put the ball over the fence and hit home runs because anything else hurts your ability to win. The true game of baseball is so much more complicated and involves both offense and defense. While some batters might be wishing to hit home runs, most are hitting for singles and doubles or simply trying to move runners into scoring position.
This translates to investing as well. Far too often we hear stories of stocks doubling or tripling and wonder “if only”. In truth, it takes the entire portfolio working in a diversified allocation to weather the good times and bad. You can’t rely on just one stock to carry you through to retirement.
When the Volkers Group opened its doors in December of 1996, many clients owned shares of a local pharmaceutical company. It was trading around $15/share ($89 before adjusting for splits). With the help of a couple very successful drugs, the stock price shot up 200% in two short years—definitely a home run that truly blessed a lot of our clients’ portfolios and retirement plans. However, the trend for this stock reversed after that and it has never gotten back up to those historic prices. Although this one “home run” stock helped some dreams come true, it has been the diversified portion of their portfolio that has allowed those clients to achieve their goals for the past 18 years, because life didn’t stop after 1998.
As we continue to follow the markets the second half of this year, we will continue to focus on asset allocation. We might hit a home run or two, but we are hoping for consistency with singles and doubles to get us through the rest of this year. Enjoy the rest of your summer!