Investing Lessons of a Baseball Blowout

Yesterday, the Texas Rangers unloaded on the Baltimore Orioles for 30 runs in a single game -- the highest score by any team in the last 110 years.

If you think that blowout has nothing to do with investing, check out today's post from Stephen Dubner on his Freakonomics blog, where he asks readers to guess how the Rangers scored their 30 runs on an inning-by-inning basis. While most people probably assume the Rangers scored runs in almost every single inning, all 30 runs occurred in only four of the game's nine innings.

That same pattern holds true in the stock market. Most investors expect their stocks, and the market as a whole, to rise fairly consistently. That may hold true over the long term, but in the short run, the market displays a surprising amount of volatility.

I'd compare yesterday's 30-run outburst by the Rangers to VMware's (NYSE: VMW  ) scorching IPO debut last week, in which its stock spiked 76%. Like the Rangers, it's possible that VMware's extraordinary performance promises greater days ahead. But my guess is that both the team and the stock will soon revert to the mean.

For instance, last year's best opening-day IPO performance belonged to Isilon Systems (Nasdaq: ISLN  ) , which jumped 78%. It has since fallen to 28% below its $13 opening price. I'm not suggesting that the same thing must happen to VMware. I'm just saying that one day's results don't guarantee a stock's entire future.

It would be wonderful if we could only attend baseball games where 30 runs are scored, or get in and out of stocks at exactly the right time. But that's not how either game works. Investing, like baseball, is a long-term game that requires both patience and discipline. One-day anomalies can sure be fun if you're on the winning side, but it's more important to stay involved in the game, and focus most on long-term performance.

Run home with further sporting Foolishness:

Fool contributor Jack Uldrich thinks his son once scored 30 runs on him in a Wii baseball game. He doesn't hold positions in any of the stocks mentioned in this article. The Fool's disclosure policy is a graceful winner.

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10/25/2016 1:32 PM
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