Don’t let those off-years diminish overall performance

It has been said that one of the most difficult feats in all of sports is hitting a Major League curveball. Yet many pro baseball players have successfully made a name for themselves by doing just that, although you probably cannot list the game’s top three hitters. If you just tried, a name that probably did not 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.

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 underperformed 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 outperformance, 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.

If you have any questions about your investments, need to inform us of family or work-related changes, or want to discuss your financial planning needs, please reach out. We are here to help you reach your financial life goals.