Mixing NAPFA and Wrigley Field

Ah, summer time. I’m writing this on a Friday, only a couple of days past the longest day of the year, when the extended hours of Pacific Northwest sunshine make up for our “forever” dark days of winter. The mind turns to travel, collegial events … and baseball.

Last month, I attended a National Association of Personal Financial Advisors (NAPFA) Mix Group in Chicago. As usual it was good to catch up with my advisor colleagues, plus the gathering always generates new ideas to share in my blog. As I reflect over the years and meeting venues (last fall was New York City, last spring was Salt Lake City and before that was Ann Arbor), I can’t help but appreciate how much the gatherings mean to me. Collectively we have supported one another through challenges and celebrated each other’s successes. We’ve also contributed a range of individual viewpoints from which to learn and grow in our profession.

One of the things I appreciate the most is our candid discussions related to financial planning. This time, we shared portfolio construction ideas: appropriate returns assumptions and allocations for various asset classes. This seemed a timely discussion with what’s been happening lately in Europe and what the long term impact may be for investors. We also explored planning techniques, such as how to best calculate annual withdrawal rates for sustaining a lifetime of income. As usual we all benefitted from our varied perspectives on the latest research, commentaries and academic insights.

When we weren’t discussing finance, the highlight for me was a trip to Wrigley field, to watch a Chicago Cubs baseball game. While Michael Lewis has done a fine job of conveying similar concepts in his book (and subsequent Hollywood blockbuster), Moneyball, I can’t help but draw some of my own parallels between baseball and investing. For both, it’s often a matter of probabilities often mattering the most.

As I watched from high above the first base line, I thought about how nearly every decision made by the players and their managers involve percentages. Whether the batter swings, bunts or stays; to which side of the plate the pitcher delivers the ball; what player goes to bat in specific situations; when to relieve the pitcher … and so on. It’s not necessarily the immediate hits or misses, but rather the collective impact of these statistic-based decisions that win or lose the game, and eventually the season and the series. (For the record, this is not a new idea, to me or Lewis. The concept is generally attributed to Bill James, who first promoted the significance of these sorts of statistics in the late 1970s in his initially self-published Baseball Abstract.)

Similarly, as my clients’ advisor, much of the “swing, bunt or stay” advice I dispense is reminiscent of my day at Wrigley Field. How much in bonds versus stocks to reflect what level of safety versus risk, volatility versus reward; when to harvest taxable losses; when to buy and sell individual positions; how to prioritize tax planning and cost management; planning for accumulation (investing) versus cash flow (withdrawal) … all of these decisions and many others are based on applying discreet points of measurable evidence as they affect each client’s definition of long-range, overall “success.”

Of course, not all parallels work between me and the Cubs. What if I had tried to apply these similar skills to actually becoming a professional ball player? Let’s just say that I’d best keep my day job, because my batting average on the diamond isn’t quite ready for the major leagues.