How to Avoid Curve Balls in Your Investment Strategy

In my early years of playing in the MLB, it was always said that one of the most difficult feats in all of sports is hitting a Major League curve ball. Yet many professional baseball players have successfully made a name for themselves by doing just that, although you may have a hard time listing the game’s top three hitters. A name that might not instantly come to mind is Rogers Hornsby, a second baseman with a career .358 batting average, who trails only the legendary Ty Cobb on that list. His career lasted from 1915 to 1937, the majority of which was spent with the St. Louis Cardinals. Hornsby batted an astounding .424 during his best year, and proved it was not a fluke by hitting .403 the next season. He hit a dismal .208 during his worst year, but, even then, he thwarted opposing pitchers more than most with his smooth swing and consistent approach at the plate.

Playing the Long Game

Just like Hornsby, the cornerstone of our long-term equity strategy: placing a greater emphasis on small-cap companies and value companies, has had periods of hitting above and below its long-term average. Our strategy has had periods where it wasn’t the top performer, like those years when Lefty O’Doul beat out Hornsby for the best National League batting average. However, those off-years did not diminish Hornsby’s overall career.

The recent strong performance of large-cap growth stocks has caused some to doubt the efficacy of our strategy. The most recent 10-year period ending March 2020 has seen large-cap stocks (13.6%) soar above their historical average (9.9%). The same can be said for growth stocks (15.3% versus 9.8%). We question how long this will last.

Instead, our focus remains on small-cap stocks. Their latest 10-year performance falls in line with their historical average of 11.8%. Value stocks have under-performed their historical average during the latest 10-year period (11.3% versus 12.8%), but not by much, and both still far exceed the historical average for growth stocks (9.8%).

Following performance trends may result in the occasional out-performance, but rarely does it produce superior long-term outcomes. We believe having a prudent, disciplined investment approach based on evidence and data will produce superior long-term results, just like Hornsby’s prudent, disciplined approach to hitting helped maximize his chances of success at the plate.

Want to hear more about our investment approach? Contact Claris to learn how to Understand. Invest and Relax.

Source: Ken French Data Library. Factors and indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Total return includes reinvestment of dividends. Long-term investing neither assures a profit nor guarantees against loss in a declining market. Past performance does not guarantee future results. Stock investing involves risks, including increased volatility (up and own movement in the value of your assets). All investing involves risk, principal loss is possible.

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