Articles

Have you ever wondered why major league baseball pitchers go through such an elaborate windup before pitching the ball? If not, you’re not alone. According to a recent Wall Street Journal article, an increasing number of major league pitchers are beginning to ask themselves if skipping the windup will result in more reliable and consistent delivery. Pitching from the windup is when a pitcher lifts his arms high over his head, rocks back, and twists his body toward home plate. This involves a lot of movement that pitchers increasingly feel may actually reduce the consistency of their pitching. Pitching from the stretch, on the other hand, is where a pitcher lines his shoulders up pointing toward home plate and simply lifts his front leg to deliver the ball to home plate. There is much less unnecessary movement involved with pitching from the stretch. A pitcher utilizes only the important parts of the delivery, so over time, the results are much more consistent and predictable.

It struck me that this is similar to how we construct client investment portfolios and also how we create financial plans for clients.

The team at Baker Boyer is continually asking the question: how can we build investment portfolios that will result in better, more reliable outcomes for our clients? We are constantly looking for ways to put the odds of investment success in our clients’ favor and that is not an easy task, as the world of investments is vast. There is no shortage of investments that are the equivalent of the windup pitch: they have been used in the investment industry for a long time, they look reasonably effective, and they are utilized by well-known figures in the industry. These are investments that look good and say all the right things, but upon close inspection do not offer consistency and reliability.

The portfolio management and planning teams at Baker Boyer are dedicated to the task of identifying investment strategies that work for clients over the long haul. Over the long haul, investment success is not measured in stock picks. It is instead measured in the disciplined, consistent execution of a thoughtful process. We are not interested in the complicated strategy that worked last year if it offers no compelling reason why the success will continue. That’s speculating, not investing. Similarly, we are not content to simply get the return of the market, as we believe we can reliably and transparently beat markets over time by consistently focusing on factors that lead to long-term success.

Constructing client investment portfolios begins with an understanding of both the clients’ willingness and ability to take risks.

This conversation is often one of the most important, if not the most important conversation we have with new clients because it allows us to partner with the client to set expectations. Over the long-term, a portfolio invested 100% in stocks has a high probability of outperforming one made up of 50% stocks and 50% bonds, but that won’t matter if the client can’t stick with it. The best investment portfolio is the one you have the wherewithal to stick with when the ups and downs of the market eventually occur. After we’ve decided on the right mix of stocks and bonds, we work with partners to implement our investment philosophy across those different markets.

One of the biggest benefits of having a consistent method of investing is quickly understanding what’s going on in any portfolio to continually evaluate the strategies we use. This ultimately leads to more productive conversations among our investment committee and also in meetings with clients. It also helps us to spend more time focusing on the things that are in our control, which are asset allocation, trading costs, and taxes.

This same idea applies to financial planning. We have a process for delivering advice, but that advice is personalized for each client. Just like each pitcher has a unique combination of pitches, each client has a unique combination of income, goals, and resources. The process for creating a good financial plan for a client begins with understanding where they are, where they want to go, and then come up with the most efficient way to get there. The client’s financial plan is the roadmap that gets them to where they want to be. It also serves as a baseline to compare how the team is doing along the way.

It takes trust and time to really get to the issues that mean the most to clients. Some might not even know they were dealing with a certain issue when they first came to see us, but that issue often ends up being the most important. There have been numerous times that clients initially engage us in financial planning for one reason or question and through our work together come to realize what is really important to them is something completely different. This is why it is often difficult to convey the value of financial planning to someone who hasn’t done it successfully; it’s unique, it’s emotional, and it’s complicated.

Once we understand where the client is and have clarified where they are trying to go, we set out to increase their chances of getting there. No two financial planning situations are the same, so we use a different combination of financial planning tools to help each client. Although retirement planning might seem to be a separate issue from estate planning or investment management, they are all interrelated and a change in one area affects the others. It would be stretching the truth to say that we always look forward to reading an article on upcoming financial regulation or tax law, but it makes it all worth it when those pieces can come together to help a client.

Delivering the right advice, at the right time and for the right reason is the best part of the job.

I can remember throwing a tennis ball against my wooden fence as a kid. I would throw sidearm, try a goofy new windup I saw on television and grip the ball in all sorts of different ways in an attempt to improve. But ultimately the things that helped me become the best pitcher I could be didn’t have much to do with my experimenting in the backyard. It came from coaches helping me develop a repeatable and consistent delivery that I could build from.

Debating the investment merits of Nike stock versus Under Armour stock can be interesting, educational, and entertaining, but should not be at the center of your long-term investment strategy. Your investment and financial plans should be thoughtful, efficient, and ultimately deliver you peace of mind. Some clients expect a financial plan to be a document with a detailed list of tasks to complete with deadlines, but that list often changes over time because clients’ lives are changing over time. That’s why financial planning is a process; it requires monitoring and adjustments and is never done. Life can feel like a pitcher going into a windup with a lot of moving parts, but it’s our job to help clients simplify their lives into something that feels more like a pitcher pitching from the stretch. Simplifying our clients’ lives and helping them understand what to focus on is the most important job we have. Our investment and planning processes can help to do just that.