All-Star Investing: Swing for the Hall, Not the Fences

by Marc Bastow | July 10, 2012 8:30 am

All-Star Investing: Swing for the Hall, Not the Fences

The baseball season officially is at its midway point, with the MLB All-Star Game set for tonight in Kansas City’s Kauffman Stadium. While nothing quite so official marks the second half of the Wall Street season, Monday’s earnings report by Alcoa (NYSE:AA[1]) is a recognized figurehead that kicks off the earnings season and has investors looking toward the rest of the year.

What on earth does one have to do with the other? Glad you asked.

Hitting the baseball metaphor right on the head, too many investors have a “swing for the fences” mentality, whereby they spend an inordinate amount of time, money and energy looking for the big home-run stock pick, but often strike out. The result? Lots of money spent, with little to show for it at the end of the season.

Of course, a less sexy but often more successful method is to look for consistency in a company — the kind of stocks that run up on singles and doubles, so to speak. They might not give you fireworks, but they’ll contribute positively more often than not.

Naturally, two baseball players headed to the All-Star game come to mind.

Adam Dunn is a designated hitter for the Chicago White Sox who still is kicking around because he hits home runs. A lot. In fact, during his 12-year career, he has accumulated 390 of them in just under 5,700 at-bats — that means about 7% of his at-bats result in a home run.

Sounds great, right? Problem is, Dunn also strikes out. A lot.┬áDunn led the league in strikeouts for three straight years in the mid-2000′s, and for his career, 34% of his at-bats have resulted in strikeouts. His career batting average is a paltry .242, and while watching him pound homers is exciting, his chances of making a Hall-of-Fame run are slim (although, if he reaches that storied 500 home run mark, one never knows).

Just like Dunn swinging for the fences, a stock picker weighs big risk for big reward when putting their money into momentum stocks[2] like Green Mountain (NASDAQ:GMCR[3]) or Research in Motion (NASDAQ:RIMM[4]). While you can afford a player like this on a baseball team, it’s not as good an idea for long-term investing, where strikeouts mean real money lost.

Meanwhile, there’s Chipper Jones. Jones is an institution for the Atlanta Braves, and he will enter the All-Star week on the National League roster in this, his 19th and final season. Jones has been a model of consistency throughout his career, and he almost certainly is a first-ballot Hall-of-Famer.

Jones’ 460 home runs, 2,670 hits and .304 average are steady enough, but what I love is his career strikeouts: just fewer than 1,400. In 8,770 at-bats, Jones struck out about 16% of the time. While his home runs are even closer to that magic 500 figure, it’s the singles and doubles where Dunn would be walking back to the dugout that really make Jones shine.

The lesson for investors?

Taking the occasional home-run cut is fine as long as it’s mixed in with level-headed investments that produce solid results.

Tried-and-true dividend stocks like Johnson and Johnson (NYSE:JNJ[5]), International Business Machines (NYSE:IBM[6]), Coca-Cola (NYSE:KO[7]) and Wal-Mart (NYSE:WMT[8]) are those boring but necessary singles that keep you in the game.

And you can even leg out longer hits with discount retailers[9] like Kohl’s (NYSE:KSS[10]), Family Dollar (NYSE:FDO[11]), and Costco (NASDAQ:COST[12]) that are well-managed and well-positioned, or companies on the cutting edge that still have solid track records like Amazon (NASDAQ:AMZN[13]), Google (NASDAQ:GOOG[14]) and Priceline (NASDAQ:PCLN[15]).

Start out the second half of 2012 trying to manage your portfolio a little more like Chipper and a little less like Dunn.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long JNJ.

Endnotes:
  1. AA: http://studio-5.financialcontent.com/investplace/quote?Symbol=AA
  2. momentum stocks: http://investorplace.com/2012/05/when-momentum-stocks-lose-their-mojo/
  3. GMCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=GMCR
  4. RIMM: http://studio-5.financialcontent.com/investplace/quote?Symbol=RIMM
  5. JNJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNJ
  6. IBM: http://studio-5.financialcontent.com/investplace/quote?Symbol=IBM
  7. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  8. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  9. discount retailers: http://investorplace.com/2012/06/dollar-retail-stores-dltr-dg-fdo/
  10. KSS: http://studio-5.financialcontent.com/investplace/quote?Symbol=KSS
  11. FDO: http://studio-5.financialcontent.com/investplace/quote?Symbol=FDO
  12. COST: http://studio-5.financialcontent.com/investplace/quote?Symbol=COST
  13. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  14. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  15. PCLN: http://studio-5.financialcontent.com/investplace/quote?Symbol=PCLN

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