Pickleball is the fastest-growing sport in the United States. This oddly-named sport combines tennis, badminton, and table tennis, and can be played on any public tennis court with some slight modifications. The phenomenon gained popularity in the early 2020s, with the number of players growing by 158% over three years and almost doubling in 2022 alone.[1]
For the past four years, I’ve been meeting once a week with the same three friends to play pickleball at Cedar Rose Park. Our weekly matches have been a great way to get my heart rate up and catch up on all the middle school gossip, as well as enjoy the comradery that comes with a team sport.
As with other successful innovations, it is now hard to imagine what life was like before my weekly sessions at the court. However, another hallmark trait of innovation is that it often comes with unintended downsides that must be balanced against the benefits.
Clear Benefits, Unexpected Risks
The benefits of pickleball include improved physical and mental well-being. With smaller courts and a focus on playing in pairs, it can be a great alternative to tennis or other traditional sports, and the social aspect and low-impact nature of pickleball make it especially popular with an older demographic. However, as injuries occur in knees, hips, and elbows, the downside for players creates ripple effects for the healthcare and insurance industries.
According to a recent UBS study, it is estimated that pickleball was responsible for $250M to $500M of additional medical costs in 2023.[2] Pickleball participation has become a common question at doctor visits and has led to increased revenues for certain outpatient healthcare providers. Additionally, there are more noise complaints from residents as the type of bat and ball used creates a much louder sound than in traditional tennis matches. Cedar Rose Park is already experimenting with new tactics for sound dampening.
As with all technological or social innovations, there will be growing pains, and secondary or tertiary innovations will be needed to address new issues as they arise. Most innovative ideas or moments of social change struggle as they find their footing in society, and it is up to us, as citizens, consumers, and investors, to evaluate the potential benefits and risks of each opportunity.
Innovation: The Good, the Bad, and the Ugly
Innovation can create whole new markets that can be impossible to predict and can feel disruptive to our well-known patterns and expectations. The recent expansion of AI has significant potential to impact all corners of the economy, eliminating certain jobs while simultaneously creating new jobs and opportunities for growth. AI has benefited from heavy investment by large tech companies over a long period of time, and more recently those companies have seen their stock prices soar.
However, not all innovation turns out to be good for the economy and the markets. The creation of opaque collateralized debt obligations and other derivatives on mortgage-backed securities played a significant role in the 2008 global financial crisis. What was once touted as financial innovation that limited risks, turned out to be an overly complex new product with limited oversight and a proliferation of predatory lending. The pursuit of innovation is a positive, but when the risks are ill-understood, the ripple effects have the potential to destabilize the broader financial system if they’re not carefully managed.
Lastly, as they say, not all that glitters is gold. It can be easy to get carried away with the hype around new innovations, especially when these ideas are getting attention from traditional news outlets or social media that infiltrate our screens. Just because a new idea is popular in the moment, doesn’t make it a wise investment. We all remember Betamax, the Segway, and, more recently, NFTs. These ideas often feel novel to consumers at the moment or attract those who have a fear of missing out, yet most “innovations” are red herrings when it comes to long-term profitability within investment portfolios.
Managing the Unexpected
History shows that it is impossible to consistently and accurately evaluate the risks and predict the winners and losers of every innovation race. In order to address this, we diversify our client portfolios to benefit from new ideas while mitigating the impact of unexpected volatility.
Diversification is a key strategy that provides clients with exposure to multiple asset classes (stocks, bonds, real estate) as well as diversification across multiple sectors, regions, and company sizes within each asset class. This strategy reduces the risk of any single stock performing poorly and dragging down the entire portfolio, while simultaneously providing exposure to other companies or sectors that may be performing better. While this strategy can mean missing potential short-term highs achieved by riskier and more concentrated approaches, the added benefit is a smoothing out of returns and the creation of a calmer experience during times of volatility.
We believe that in the long term, being positioned across all industries will lead to better outcomes than trying to predict which sector will create growth in the short term.
It’s a Team Sport
Pickleball’s evolution from a backyard game to organized leagues and professional tournaments highlights how quickly a new idea can become the norm and shift the landscape. Whether exploring a new sport or crafting a long-term portfolio, navigating this process as part of a team is more effective and enjoyable and typically leads to better outcomes.
At North Berkeley, we believe innovation is key to continued growth in global economies and financial markets. Through diversified portfolios, we ensure that our clients have systematic and measured exposure to future innovation and growth. In the same way that successful pickleball players use a variety of shots, from lobs to dinks over the net, a diversified portfolio uses a mix of assets to capture growth and reduce volatility in an ever-evolving economy.
Resources:
2. Pickleball pandemonium. Financial Times
 | About Matthew Gatt, CFP®Matthew Gatt is a Lead Advisor at North Berkeley Wealth Management. He works with clients to align their financial lives with their personal values. |
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