Life's Lessons in Financial Management: Staying in the Game
June 2024: With summertime upon us, our family recently wrapped up another little league season. I love that time of year, especially coaching my son’s team. He is seven and just moved up from t-ball to the machine pitch league. It is a big jump from t-ball and the pressure increases for these little guys. The transition is more than just learning to hit a ball launched by a machine, it’s about embracing a new level of competition where strikeouts count, scores are kept, and victories aren't handed out freely. This shift can create a range of emotions, from anxiety to tears, as these young athletes grapple with the concept of not everyone wins and trophies are earned, not just handed out.
Besides baseball fundamentals, one of the most important lessons we instill in our players is you have to be mentally tough. Baseball, after all, is a game defined by managing failure. Even the most accomplished players fail more often than they succeed. Consider the player with the highest batting average in Major League Baseball right now, Luis Arraez, hitting a solid .337 with an on-base percentage of .375. These statistics tell us the player with the best stats in baseball right now is unsuccessful over 65% of the time he bats. If I told you that you would be unsuccessful at something 65% of the time, discouragement would start to build very quickly.
But, the elite players believe with 100% confidence that they will be successful the next time up. It’s a baseball mentality that begins at the earliest levels. Even after multiple strike outs, errors in the field, and game losses, the next time is your time to shine. Errors are behind you and failing forward is the only option.
While we need our players to have this self-assurance, the real challenge is to cultivate confidence without becoming arrogant. We teach our young players to have controlled confidence and optimism, not blind egotism. There is a fine line between the two and it becomes important to be able to manage the difference. This past season our team made it to the playoffs and we were seeded against an opponent that beat us by 10 runs the last regular game of the season. My players were discouraged because they just knew we didn’t have a chance. Kensington Defender Strategy June 2024
This uncertainly and previous experience caused doubt in them that was hard to overcome. As coaches, we continually told them during practice they had to believe they could compete and win. The reality of the situation was the opposing team was older, more experienced, and better than us at almost every aspect of the game. During the game, each time we took the field I reminded them to trust their ability and they could get these batters out. Then, before each kid batted, I asked them, “Do you believe you can get a hit?” Their answer was almost always a determination of their success. In the playoff game, we were down by several runs with two outs and a couple of kids on base. The next batter up was our smallest player who only had one hit all season and strikes out almost every time.
As he walked up to the plate I asked him, “Are you going to hit the ball?” His answer was confident, “NO!” I kneeled down in front of him and reminded him of that one hit he had and told him that he had to believe he was going to crush the ball. After the first few pitches of swings and misses, I went down to the plate one last time and looked him in the eye and asked him, “Do you believe you can hit the ball?” Not sure if he actually believed it or was just trying to get rid of me, but he said “YES!” On the next pitch, he hit a short ground ball about 15 feet down the 3rd base line. He reached 1st base safely, driving in a run. Our next three batters were able to tie up the game and our kids started to believe they could win. Their entire attitude changed. Unfortunately, we fell one run short, but those boys were excited and they competed well.
There is an old saying on Wall Street that bad certainty is better than uncertainty. In general, markets get nervous with uncertainty and volatility usually follows. Once information becomes known, even if it is bad information, there is a reaction, then often a settlement in volatility. Lately it sure feels like the markets are crazy confident and certain about the outcomes. At the end of last year, markets were certain that interest rates would be lowered in 2024 at least 5 times.
In January of this year, a rough start to markets was almost certain as sales and earnings were projected to lag. Then, this inflation thing everyone keeps talking about was surely going to decline and get back to a normal level, but seems to remain “sticky.”
It reminds me of confidence of a baseball player at the plate. No matter what is happening around them, they anticipate great success moving forward. In general, I think that is a good thing, seems to prop up markets through shaky data. However, sometimes I get concerned about over confidence or what economists like to call irrational exuberance.
It is the feeling the market will always continue to go up from here, no matter the levels. That is the dangerous egotism I warn my players about. We have to be disciplined and confident, but not arrogant and invest blindly. It is easy to want to catch a bubble or ride a wave that seems like it will never pop or never end. It takes discipline to trust your process and believe in your plan.
The Defender Strategy has certainly been positive through the market rally the past few months, and placed investors’ dollars in the asset classes with the momentum. Although not perfect, it was a disciplined and risk-managed approach. Our goal is to always try to keep our investors in the game with base hits. When we try to swing for the fences to keep up with others, strike-outs often occur. Just as I told our young players, our confidence comes from discipline and planning (practice), not what others are doing.
As we lead into the second half of 2024, I can give you at least a dozen reasons to be really nervous about investing dollars. Election, geopolitical risks, slowing GDP, sticky inflation, and higher rates, just to name a few. It sure feels like we are about to face the team that just beat us by 10 runs. However, remember that the purpose of the Defender Strategy is not to try and predict what is going to happen over the next 6 months or even a year. The design and discipline is positioning client assets for success in the next 30 days, and repeat that every month. We believe strongly in our process and risk-management structures that help keep investors in the game. It is not always perfect, we can get behind, but long-term we are confident in the outcomes.
For the month of June, the Capital Defender Strategy is still indicating that 11 out of 12 categories have positive momentum. The asset classes with exposure are Gold, Nasdaq 100, S&P 500, US Small Cap Equities, Europe, and Japan. For the smaller Risk-Off portion this month, we will remain in treasuries.
Click below to subscribe to our Insights!
Receive email notifications when new articles are published
Disclaimer
Investing involves risk, including loss of principal. Past performance does not guarantee future results. There is no guarantee any investment strategy will generate a profit or prevent a loss.
This is for informational purposes only and is not a recommendation nor solicitation to buy, sell or invest in any investment product or strategy. Our materials may contain information deemed to be correct and appropriate at a given time but may not reflect our current views or opinions due to changing market conditions. No information provided should be viewed as or used as a substitute for individualized investment advice. An investor should consider the investment objectives, risks, charges, and expenses of the investment and the strategy carefully before investing.
Kensington Asset Management, LLC (“KAM”) relies on third party sources for some of its information that we believe is reliable. However, we make no representation, warranty, endorse or affirm as to its accuracy or completeness. The information provided is current as of the date of publication and may be subject to change. We are not responsible for updating this information to reflect any subsequent developments or events.
Any indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends and do not reflect the impact of advisory fees. Investors cannot invest directly in an index. Comparisons to indexes have limitations because indexes have volatility and other material characteristics that may differ from a particular strategy such as the types of securities being substantially different.
Certain information contained herein constitutes “forward-looking statements,” which can be identified using forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results, or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation as to the future.
Advisory services offered through Kensington Asset Management, LLC, Barton Oaks Plaza, Bldg II, 901 S Mopac Expy – Ste 225, Austin, TX 78746.