Howdy!
Today is the Major League Baseball trade deadline.
No, wait… before your eyes glaze over, bear with me! Even if you’re not a baseball fan!
See, in these newsletters, I want to talk about what’s on my mind… and if you come from a baseball-obsessed city like St. Louis, the trade deadline is very much on your mind…
For anyone who doesn’t know, a “trade deadline” is sort of like the “closing bell” of the baseball season. If two teams want to swap players, they have to get it in before the deadline (which I think is 6 pm today) or they don’t get to make the trade at all.
And yesterday, my favorite team, the Cardinals (I’m sorry to whoever that offends, I had no choice!) made a trade, swapping a local favorite named Tommy Edman for a couple of players the team desperately needed.
It sucks to see a player you love go, even if you know (or think you know) that it’s better for the team in the long run.
Now, you might wonder, “this is great, Stephen, but why does it matter to me?”
And unless you’re a fan of the Dodgers, Cardinals, or White Sox, this trade probably doesn’t matter to you… but hang with me!
Because as I’ve been thinking about this deadline… a lot… even during work hours (sorry, Nate!) I have been thinking about some really valuable lessons that these MLB teams can teach me and you about trading in the markets, both through their successes and through their failures!
Let’s dive into them… Income Ace Shares His “3 Golden Rules” for Portfolio Growth Here are the three rules I think the MLB trade deadline has taught me about trading…
Rule 1: Get Comfortable with Risk
I think most traders have what I would respectfully call an immature understanding of risk.
As an example, I was on a webinar with Nate Tucci today and we both noticed a comment that said something to the effect of: “if this strategy only returns 17.08%, winners AND losers, it’s not worth my time…”
Now, I don’t mean to pick on the guy, but unless the man on the other side of that comment was the best and most successful investor in world history, that is a crazy take.
But I don’t think the guy is alone.
In my opinion, most traders fall into one of two camps: they either put ALL their focus on risk, or they put ALL their focus on reward!
This guy was clearly a “reward-side” guy. He wants strategies that spit out BIG returns, and he either doesn’t know or doesn’t care about the risk associated.
There are others who think only about the risk side. They’ll see a strategy that “risks” 100% of the starting stake every time, and run away from it, ignoring the fact that, theoretically, it wins 78% of the time or that it returns 17% on average across ALL trades, winners and losers.
The trade deadline teaches us to think radically differently about risk. It teaches us that we have to consider all the factors and come up with the best strategies for where WE’RE at.
Take the Texas Rangers for example. Last year, nobody had them ranked as a potential championship contender. Even after they went out and landed superstar pitcher Jacob DeGrom.
And when DeGrom suffered an injury that would keep him out the entire season, people thought the Rangers were dead in the water.
But they didn’t care… they went out at the trade deadline and replaced Jacob DeGrom with Max Scherzer, the best dominant pitcher available to them (and a St. Louis native, by the way). They added complimentary pieces like Jordan Montgomery who played a HUGE role in the postseason.
 They were aggressive at the trade deadline, and guess what? They won the World Series!
If the Rangers had done single-factor risk analysis, they probably would have said, “oh well, wait till next year.”
They could have piled up excuses on why NOT to get aggressive and go after Scherzer, why it wasn’t their year, etc. and found any reason to not make a move.
Instead, they looked at the bigger picture. They were a team that hadn’t been winning for many years, and hadn’t won a World Series ever. They had a brand new stadium and a lot of hype around them. They wanted to reward their fans and create a team that could win.
And they did.
Could they have lost? Sure. Could those moves have come back to haunt them? Absolutely.
But sometimes, “you gotta risk it for the biscuit.” Or, at the very least, “you gotta have a mature, multi-level understanding of what actually goes into risk and reward to come up with a reasonable strategy that is tolerable for you and right for your situation” (but that doesn’t fit as well on a coffee mug. Rule 2: Let It Go Ok, this one will be quicker, I promise. And no, I’m not going to start singing Frozen (although you probably will now that I mention it).
Initially, I didn’t like the trade the Cardinals made with Edman. I didn’t want to see a player that was universally loved move to a team that would probably beat us in the postseason.
And the Rangers probably didn’t want to move on from one of their top outfield prospects when they got Scherzer.
But in both cases, the teams realized that what they were getting was worth more to them than what they were giving up.
Traders need to realize that, too. And it’s not just about risking money to make trades. This could apply to a lot of things: your brokerage, your favorite strategy or stock that isn’t working anymore… you can probably come up with an example for yourself.
If you just did, remember the trade deadline and tell yourself to “let it go.” Rule 3: Remember YOUR Timeline This is maybe the most important rule but it’s also the easiest to explain.
When teams get to the trade deadline, they are generally grouped as “buyers” or “sellers.”
Buyers are teams who want to win this year. They believe they are in a position to win a championship, or at least make a playoff run (which means more money for their franchise) and they are going to look to go out and get the pieces to do it.
Sellers are the opposite. This isn’t their year, and they’re going to move on from older players or players with less control (ie years on their contract) to pick up prospects who can help them when they’re ready to compete in the future.
Traders need to think the same way about their strategies.
Are you a young 20 or 30-something just starting out with years to build up a nest egg? Your strategy should look a LOT different than a near-retiree or a parent trying to build a future for their kids. Maybe you work in more risk while also building a slow and steady dividend portfolio. Maybe you need strategies that pay more with less because you’re starting smaller. And vice versa.
Every person’s individual needs are different. This is why I’m thrilled that ProsperityPub has such a diverse group of experts and strategies that can meet each different person’s needs.
Because trading should be unique to you. Are you a gambler who just wants to have fun shooting for the moon? Or are you serious about long-term portfolio growth over a 20-30 year period.
There’s no WRONG answer. But you should be asking the question.
I’ve been writing too long now. If you’ve made it this far, seriously, thank you for reading. And head over to the ProsperityPub Telegram to let me know that you want more of this!
If you’re not a baseball fan, don’t worry. You made it to the finish line. I will talk to you soon…
Happy trading,
Stephen Ground
Editor in Chief, ProsperityPub |
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