Investing is like a baseball game

photo by laffy4k

Written by Dave Young, President of Paragon Wealth Management

Imagine yourself as a baseball player.

First, your team gets a base hit, next you get a double. Then, another base hit. This is followed by a triple, and then you strike out. Then, you strike out twice in a row! Just about the time you are ready to abandon your team, they hit two home runs.

The moral of the story is you never know how the game is going to turn out unless you stay for the whole game. 

When investors see the returns our growth portfolio, Top Flight, has generated over the past 12 years, they get excited about them.

Then, when the market goes through a downturn, and Top Flight goes through a mild downturn, they start questioning their investment strategies.

Paragon's Top Flight Portfolio has generated a total return of 351.1 percent versus 39.2 percent for the S&P 500 from January 1998 through May 2010. (see www.paragonwealth.com for full track record and disclosures.) 

It is important to understand the ups and downs that investors went through in order to capture those extraordinary returns investors have seen since Top Flight's inception in 1998.

Its also important to understand that investors who did not keep a long-term perspective and bailed out of their portfolios along the way, never saw those returns.

It is only those investors who had the discipline to keep a long-term perspective who got the long-term returns.

For example, in three of the past 12 years, which is 25 percent of the time, Top Flight underperformed the S&P 500. In two of those years, Top Flight declined and investors lost money.

The investors who focused on the short-term during those times, bailed out of their portfolios. They were shaken out of their long-term investment strategy and ultimately hurt themselves by selling out of their portfolio.

In an ideal world Top Flight would always outperform and would travel a straight line of positive returns year after year. 

Unfortunately, we do not live in a perfect world. Reality is more like two steps forward and then one step back over and over.

With Top Flight we never know in advance when we are going to under perform the market or when we are going to "hit a home run." Although there are no guarantees, we do believe that if we keep stepping up to the plate and executing our investment strategy that we are going to outperform more than we under perform. Over time we believe that disciplined execution of our investment strategy will deliver outsize results. 

However, that means we have to keep stepping up to the plate, and we have to consistently follow our investment strategy.

That is how Top Flight has generated returns almost nine times more than the broad market as measured by the S&P 500 over the past 12 years.

If investors want those long-term returns, then they must "stay for the whole game". 

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Comments

[Influence strategies]

That's an interesting analogy you chose. When you think about it, a player's batting average is comparable to an investment's projected earnings. They are both expectations that can change for better or for worse with little to no warning.