Jan

30

 I am often asked what ten steps one should take to become a successful speculator.

I would start by reading the books of the 19th century speculators, 50 Years in Wall Street, The Reminiscences of a Stock Operator by Markman, and others.

Next I would read the papers of Alfred Cowles in the 1920s and try to compute similar statistics on runs and expectations for 5 or 10 markets.

Third I would get or write a program to pick out random dates from an array of prices, and see what regularities you find in it compared to picking out actual event or market based events.

Fourth, I would read Malkiel's book A Random Walk Down Wall Street and update his findings with the last 2 years of data.

Fifth, I would look at the work of Sam Eisenstadt of Value Line and see if you could replicate it in real life with updated results.

Sixth, I would start to keep daily prices, open, high, low, and close for 20 of so markets and individual stocks and go back a few years.

Seventh, I would go to a good business library and look at the old Investor Statistical Laboratory records of prices to see whether it gave you any insights.

Eighth, I would look for times when panic was in the air, and see if there were opportunities to bring out the canes on a systematic basis.

Ninth, I would apprentice myself to a good speculator and ask if I could be a helpful assistant without pay for a period.

Tenth, I would become adept at a field I knew and then try to apply some of the insights from that field into the market.

Eleventh, I would get a good book on Statistics like Snedecor or Anderson and be able to compute the usual measures of mean, variance, and regression in it.

Twelfth, I would read all the good financial papers on SSRN or Financial Analysts Journal to see what anomalies are still open.

Thirteenth, of course would be to read Bacon, Ben Green, and Atlas Shrugged.

I guess there are many other steps that should be taken that I have left out especially for the speculation in individual stocks. What additional steps would you recommend? Which of mine seem too narrow or specialized or wrong?

Rocky Humbert writes:

 All the activities mentioned are educational, however, notably missing is a precise definition of a "successful speculator." I think providing a clear, rigorous definition of both of these terms would be illuminating and a necessary first step — and the definition itself will reveal much truth.

Anatoly Veltman adds: 

I think with individual stocks: one would have to really understand the sector, the company's niche and be able to monitor inside activity for possible impropriety. Individual stocks can wipe out: Bear Stearns deflated from $60 to $2 in no time at all. In my opinion: there is no bullet-proof technical approach, applicable to an individual enterprise situation.

A widely-held index, currency cross or commodity is an entirely different arena. And where the instrument can freely move around the clock: there will be a lot of arbitrage opportunities arising out of the fact that a high percentage of participation is inefficient, limited in both the hours that they commit and the capital they commit between time-zone changes. Small inefficiencies can snowball into huge trends and turns; and given the leverage allowed in those markets - live or die financial opportunities are ever present. So technicals overpower fundamentals. So far so good.

Comes the tricky part: to adopt statistics to the fact of unprecedented centralized meddling and thievery around the very political tops. Some of the individual market decrees may be painfully random: after all, pols are just humans with their families, lovers, ills and foibles. No statistical precedent may duly incorporate such. Plus, I suspect most centralized economies of current decade may be guilty of dual-bookeeping. Those things may also blow up in more random fashion than many decades worth of statistics might dictate. Don't tell me that leveraged shorting and flexionic interventions existed even before the Great Depression. Today's globalization, money creation at a stroke of a keyboard key, abominable trends in income/education disparity and demographics, coupled with general new low in societal conscience and ethics - all combine to create a more volatile cocktail than historical market stats bear out. 2001 brought the first foreign act of war to the American soil in centuries. I know that chair and others were critical of any a money manager strategizing around such an event. But was it a fluke, or a clue: that a wrong trend in place for some time will invariably produce an unexpected event? Why can't an unprecedented event hit the world's financial domain? In the aftermath of DSK Sofitel set-up, some may begin imagining the coming bank headquarter bombing, banker shooting or other domestic terrorism. I for one envision a further off-beat scenario: that contrary to expectations, the current debt spiral will be stopped dead. Can you imagine next market moves without the printing press? Will you find statistical precedent of zooming from 2 trillion deficit to 14 trillion and suddenly stopping one day?

Craig Mee comments:

 Very generous post, thanks Victor…

I would add, in this day and age, learn tough typing and keyboard skills for execution and your way around a keyboard, so you don't wipe off a months profit in the heat of battle. I would also add, learn ways of speed reading and information absorption, though these two may be more "what to do before you start out". 

Gary Rogan writes: 

Anatoly, I don't think really understanding the sector and and the niche is all that useful unless one knows what's going on as well as the CEO of the company, which means that in general understanding quite a bit about the company isn't useful to anyone without access to enormous amount of information. It's the subtle, little, invisible things that often make all the difference. There are a lot of people who know a lot about pretty much any company, so to out-compete them based on knowledge is usually pretty hopeless. It is nevertheless sometimes possible to out-compete those with even better knowledge by sticking with longer horizons or by being a better processor of information, but it's rare.

That said, it has been shown repeatedly that some combination of buying stocks that are out of favor by some objective measure, possibly combined with some positive value-creation characteristics, such as return on invested capital, do result in market-beating return. Certainly, just about any equity can go to essentially zero, but that's what diversification is for.
 

Jeff Watson adds: 

 In the commodities markets it's essential to cultivate commercials who trade the same markets as you(especially in the grains.) One can glean much information from a commercial, information like who's buying. who's selling, who's bidding up the front month, who's spreading what, who's buying one commodity market and selling another, etc. When dealing with a commercial, be sure to not waste his time and have some valuable information to offer as a quid pro. Also, one necessary skill to develop is to determine how much of a particular commodity is for sale at any given time…. That skill takes a lot of experience to adequately gauge the market. Also, in addition to finding a good mentor, listen to your elders, the guys who have been successful speculators for decades, the guys who have seen and experienced it all. Avoid the clerks, brokers, backroom guys, analysts, touts, hoodoos etc. Learn to be cold blooded and be willing to take a hit, even if you think the market might turn around in the future. Learn to avoid hope, as hope will ultimately kill your bankroll. When engaged in speculation, find one on one games like sports, cards, chess, etc that pit you against another person. Play these games aggressively, and learn to find an edge. That edge might translate to the markets. Still, while being aggressive in the games, play a thinking man's game, play smart, and learn to play a strong defensive game……a respect for the defense will carry over to the way you approach the markets and defend your bankroll. Stay in good physical shape, get lots of exercise, eat well, avoid excesses.

Leo Jia comments:

Given that manipulation is still prevalent in some Asian markets, I would add that, for individual stocks in particular, one needs to  understand manipulators' tactics well and learn to survive and thrive under their toes.

Bruno Ombreux writes:

Just to support what Jeff said, you really have to define which market you are talking about. Because they are all different. On one hand you have stuff like S&P futures with robots trading by the nanosecond, in which algorithms and IT would be the main skill nowadays, I guess. On the other hand, you have more sedate markets with only a few big players. This article from zerohedge was really excellent. It describes the credit market, but some commodity markets are exactly the same. There the skill is more akin to high stake poker, figuring out each of your limited number of counterparts position, intentions and psychology.

Rocky Humbert adds:

I note that the Chair ignored my request to precisely define the term "successful speculator," perhaps because avoiding such rigorousness allows him to define success and speculation in a manner as to avoid acknowledging his own biases. I'd further suggest that his list of educational materials, although interesting and undoubtedly useful for all students of markets, seems biased towards an attempt to make people to be "like him."

If gold is up a gazillion percent over the past decade, and you're up 20%, are you a successful speculator?If the stock market is down 20% over a six month period, and you're down 2%, are you a successful speculator?If you have beaten the S&P by 20 basis points/year, ever year, for the past decade, without any meaningful drawdowns, are you a successful speculator?If you trade once every year or two, and every trade that you do makes some money, are you a successful speculator?

If you never trade, can you be a successful speculator?

If you dollar cost average, and are disciplined, are you a successful speculator?

If you compound at 50% per year for 10 years, and then lose everything in an afternoon, are you a successful speculator?

If you lose everything in an afternoon, and then learn from your mistake, and then compound at 50% for the next 10 years, are you a successful speculator?

If you compound at 6% per year for 10 years, and never have a meaningful drawdown, are you a successful speculator?

If the risk free rate is 6%, and you are making 12%, are you a more successful speculator then if the risk-free rate is 0% and you are making 6%?

If you think you are a successful speculator, can you really be a successful speculator?

If you think you are not a successful speculator, can you be a successful speculator?

Who are the most successful speculators of the past 100 years? Who are the least successful speculators of the past 100 years? 

An anonymous contributor adds:

 In conjunction with the chair's mention of valuable books and histories, I would append Fred Schwed's Where are the Customers' Yachts?.

While ostensibly written with a tongue-in-cheek hapless outsider view of 1920s and 1930s Wall Street, it has provided as many lessons and illustrations as anything by Henry Clews. In this case, I am reminded of the chapter in which Schwed wonders if such a thing as superior investment advice actually exists.

Pete Earle writes:

It is my opinion that the first thing that the would-be speculator should do, even before undertaking the courses of actions described by our Chair, is to open a small brokerage account and begin plunking around in small size, getting a feel for the market, the vagaries of execution quality, time delays, and the like. That may serve to either increase the appetite for such knowledge, or nip in the bud what could otherwise be a long and frustrating journey.

Kim Zussman adds: 

The obligatory Wikipedia* definition of speculation is investment with higher risk:

Speculating is the assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss. The term speculation implies that a business or investment risk can be analyzed and measured, and its distinction from the term Investment is one of degree of risk. It differs from gambling, which is based on random outcomes.

There is nothing in the act of speculating or investing that suggests holding times have anything to do with the difference in the degree of risk separating speculation from investing

By this definition one must define risk and decide what comprises high and low risk — which may be simple in extreme cases but (as we have seen repeatedly) is not very straightforward in financial markets

*Chair is quoted in the link 

Alston Mabry writes in:

I'm successful when I achieve the goals I set for myself. And rather than a target in dollars or basis points or relative to any index or ex-post wish list, those goals may simply be to act with discipline in implementing a plan and then accepting the results, modifying the plan, etc.

Anatoly Veltman adds: 

And don't forget Ed Seykota: "Everyone gets out of the market what they want". I find that everyone gets out of life what they want.

Plenty a market participant is not in it to make money. Fantastic news for those who are!

Bruno Ombreux writes:

This will actually bring me back to the question of what is a successful speculator.

In my opinion success in life is defined in having enough to eat, a roof, friendships and a happy family (as an aside, after near-death experiences, people tend to report family first). You can forget stuff like being famous, leaving a legacy or being remembered in history books. If you are interested in these things, you have chosen the wrong business. Nobody remembers traders or businessmen after their death except close family and friends. People who make history are military and political leaders, great artists, writers…

So you are limited to food, roof, friends and family. Therefore my definition of a successful speculator is a speculator that has enough of these, so that he doesn't feel he needs to speculate. I repeat, "a successful speculator does not need to speculate."

Paolo Pezzutti adds:

I simply think that a successful speculator is one who makes money trading. Among soccer players Messi, Ibrahimovic are considered very successful. They consistently score. They experience short periods without scoring. Similarly, traders should have an equity line which consistently prints new highs with low volatility and a short time between new highs. Like soccer players and other athletes it is their mental characteristics the main edge rather than knowledge of statistics. One can learn how to speculate but without talent cannot play the champions league of traders and will print an equity line with high drawdowns struggling losing too much when wrong and winning too little when right. Before dedicating time to find a statistical edge in markets one should assess his own talent and train psychologically. In this regard I like Dr Steenbarger work. In sports as in trading you very soon know yourself: your strengths and weakness. There is no mercy. You are exposed and naked. This is the greatness and cruelty of markets and competition. This is the area where one should really focus in my opinion.

Steve Ellison writes:

To elaborate a bit on Commander Pezzutti's definition, I would consider a successful speculator one who has outperformed a relevant benchmark for annual returns over a period of five years or more. Ideally, the outperformance should be statistically significant, but market returns can be so noisy that it might take much of a career to attain statistical significance.

Jeff Rollert writes:

I propose a successful speculator dies wealthy, with many friends. Wealth is not measured just in liquid terms.

Should a statistical method be preferred, I suggest he is the last speculator, with capital, from all the speculators of his college class.

In both cases, I suggest the Chair and Senator are deemed successful, each in their own way.

Leo Jia adds:

If I may wager my 2 cents here.

I would define a successful speculator as someone who has achieved a record that is substantially above the average record of all speculators in percentage terms during an extended period of time. The success here means more of a caliber that one has acquired which is manifested by the long-term record. Similarly regarded are the martial artists. One is considered successful when he has demonstrated the ability to beat substantially more than half of the people who practice martial arts, regardless of their styles, during an extended period of time. It doesn't mean that he should have encountered no failures during that time - everyone has failures. So, even if that successful one was beaten to death at one fight, he is still regarded as a successful martial artist because his past achievements are well revered.

With this view, I will try to answer Rocky's questions to illustrate.
 

Julian Rowberry writes:

An important step is to get some money. Preferably someone else's. [LOL ]

Mar

6

Prince FielderSpeaking of unwritten rules in baseball, did you see Prince Fielder get plunked yesterday for his bush-league celebration after a HR end of last year? Worth noting was how he expected and accepted it, having had all winter to digest the implications of his actions.

Mar

2

Sal MaglieI should write something about baseball and markets. I've written about the wisdom of Ted Williams for markets, and Larry Ritter, 100 market related things about baseball dare that was included in PracSpec with collab, and I've written about the hidden signs of baseball with all the thievery and spies of signs etc., and I've suggested some insights of Bill James, but the problem is I don't know anything about baseball, and I hate to write about something I don't know about like the chapter on poker in EdSpec which I wish i had never written since it was derivative and worthless. So if anyone can help me appreciate what baseball can teach about markets, I'd appreciate it. I'm particularly interested in the hidden rules, and I think I have a market system based on not running up the score, etc.

Allen Gillespie comments:

UK came back from a large deficit to tie UT with 2:13 left before loosing the game. Does the market do the same? One notes that the S&P regained its positive footing yesterday after being down for most of the year.

Also, one hidden rule is don't talk to a pitcher that is throwing a no hitter after 7 innings and give extra effort on defense. A market equivalent might be what happens over the next X batters after the first gets a hit if the market is down over the previous 21.

Jordan Neuman comments:

Baseball traditionalists love the idea of the bunt, the stolen base, and assorted "small ball" strategies. These are basically one-run strategies. And as Earl Weaver and Bill James have written, baseball people who actually do the counting, when you play for one run that is all you get. And you might not even get that.

The market equivalent has got to be all those maxims and strategies that emanate from the brokerages and the talking heads that are consistent money/opportunity losers. What is appealing in theory is more difficult in practice. I place covered calls in this category.

Stefan Jovanovich writes:

Any pitch above the shoulders is life threatening; you can die from being hit in the neck more easily than from the top side of the skull. Even so, throwing above the shoulders was within the Code even in the days before helmets had ear flaps. Sal Maglie did not get the nickname of "the Barber" because of his artful use of the straight razor. Drysdale and Early Wynn were notorious headhunters. The rule was and is a good deal more subtle. You can't throw at a batter's head if you also throw a curve ball that breaks away from him. You can't play even high level minor league ball without standing in against a pitch that is coming at your head because, if the guy is any good, that ball is going to break down and away for a strike.

Drysdale and Winn were fastball, change-up pitchers so their aggressiveness was tolerated; it was part of their game. Walter Johnson and Bob Feller are always written about as being "gentlemen" because they never threw at batters; they didn't because with their stuff (fast balls and right-handed down and in curve balls) it would have been attempted manslaughter. Sammy Sosa was "beloved" because he was a cripples hitter; he killed mistakes and ate up mediocre pitchers, but he was never feared by anyone who had stuff and knew how to use it. Barry Bonds was "disliked" because he ruined everybody and because he had the guts to wear protection for the batter's most vulnerable body part - his leading elbow and forearm - and not give a damn what the league or opponents thought about it. He also mastered what remains the hardest thing to do in hitting: swinging late and still getting around on the inside pitch. In that he was a throwback to the golden age when even someone with arms as long as Ted Williams would have his wrists pass over the inside of the plate. Modern hitters with their longer, lighter bats don't go there any more– which is why the Atlanta Braves during their glory years were always coached to pitch outside: "Having Leo Mazzone as a pitching coach lowered a pitcher's ERA by a little more than half a run."

The respect thing is wildly exaggerated. Players appreciate each other's skills but they get paid for winning and numbers, not for obeisance. Chuck Hiller, who was a wonderful catcher for the Giants, once said that if the league learned that a player had leukemia, they would be sad but, if the guy still had his stuff, the dugouts would be calling him "Luke" by the 3rd inning. Bang the Drum Slowly gets that right; everybody is sad for Robert De Nero who is dying but nobody on the team comes to the funeral except for Michael Moriarty.

Rodger Bastien comments:

A pitcher is expected to throw a brush-back pitch in the next half-inning if his teammate has been hit with a pitch, but it's taboo to throw that pitch above the batter's shoulders or behind the hitter ( a batter's instinct is to hit the dirt therefore he could be beaned that way). Good hard slides are a part of baseball but sliding "spikes high" is a no-no. Along with not stealing with a big lead you should not stretch singles to doubles or doubles to triples with a very large lead. If a batter leans over the plate, a pitcher is expected to throw inside to regain that part of the plate; a hitter with such a stance should expect a fair amount of inside pitches and should take his base without protest when hit by a pitch. When an umpire takes a nasty foul off of his unprotected areas or is shaken with a foul off of his mask, the catcher should go to the mound to give the umpire time to shake it off. And middle infielders protect themselves by throwing the ball to first during a double play right between the oncoming runner's eyes; its his responsibility to get down to avoid getting hit.

Nov

3

I am a reasonably knowledgeable baseball fan (read a lot of Bill James) but have always wondered about the following very basic question:

Batter hits a line drive, but he is out because he hit right at a defensive player. Is that predominantly luck, a few feet left or right and it would have been a hit? Or has the defense correctly positioned its player and the pitcher correctly pitched to the batter to make it likely he would hit where the player is? I realize it's not 100% either way. But is it, say, 75% luck? Or 75% that the defense has correctly positioned itself and the pitcher correctly pitched to make it come out that way?

Phil McDonnell replies:

P McDThe game is played both ways. The batters try to aim for holes in the defense. The usual infield holes are between 1st and second, up the middle and between the 3rd baseman and shortstop. The outfield holes are the left center gap and right center gap. It is rather easy to hit a ball exactly where you want in a soft toss to yourself. The real problem is when the batter is facing a 90 mile an hour pitcher with maybe a little break on the ball. The key is to time the swing so that the bat hits at exactly the right angle. Sometimes batters just miss.

It is sometimes said that football is a game of feet and inches. If that is true then baseball is a game of millimeters. For example a ball hit squarely on the widest part of the bat will generally result in a line drive. But if the ball hits a little high then it may result in a fly ball or even a simple pop out. A little low and the batter will ground out.

Pitchers know that batters rely on timing the swing in order to hit the ball where they would like it. The key pitching counter strategy is to vary the speed of pitches. There is no pitcher in the major leagues who does not have a fast ball and at least one other off speed pitch. Changing speeds is the key to good pitching.

Pitch placement is also essential to good pitching. Generally most pitchers will throw fast inside and soft away. This forces the batter to read the speed earlier than otherwise if he is trying to place the ball by timing his bat angle.

Sometimes the fielders get into the act as well. The second baseman and shortstop will often read the catcher's signals and signal each other as to who will cover second base and who backs up if there is a runner on 1st. In this situation the batter will try to hit 'behind the runner' aiming for the hole between 1st and second. The double play 2nd to short to 1st is slightly more difficult than the short to 2nd to 1st. The reason is that shorts and 2nd basemen are always right handed. The guy at second has to turn his body in order to make the throw back to second with the shortstop covering.

The defense knows the batter will try to hit behind the runner and counters. The pitcher will tend to pitch fastballs inside to make it hard for the batter. The shortstop will probably play closer to 2nd to take the throw. This frees up the 2nd baseman to field a wider range.

There are statistical services that teams buy which analyze where a player is most likely to hit the ball. Usually it is shown as a scatter chart on a baseball diamond. Ted Williams was famous as a player who would predominantly hit to the right side of the field. Consequently several teams came up with the Williams shift, where they left only one outfielder and one infielder on the left side of the diamond. Initially the shift worked and Ted struggled a bit. But he finally demonstrated the fatal flaw in that defense by successfully bunting toward 3rd base which had a gaping hole.

In any one at-bat using these strategies only gives one a small edge, maybe 10%. The average player bats maybe 500 times in a season and there are nine players, so about 4500 chances in a season. On defense there are about the same number of chances for a total of maybe 9,000. But as in trading and gambling, over time a small edge adds up to a winning strategy.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Dean Davis adds:

On the two youth teams I coach we move our players into spaces where they have a greater chance to make a play depending on the pitch I call. For example I'll signal the right fielder to move in and to his left when I am pitching a right hander at the belt, but off the plate (away). That results in many outs from weakly hit fly balls to right field that would otherwise be singles that drop in. Sometimes we luck into a grounder hit through the hole that the tight right fielder can throw out at 1st. I build a defensive game plan around the tempting pitch that is hard to hit well.

Ken Drees writes:

In early youth leagues we were coached to check out the third baseman's position. If a right handed batter simply turned himself somewhat towards third base and opened his stance towards left, he could aim a hit down the line or in the hole depending on the 3rd baseman's position. This also gave the batter a better chance of making it to first since it was the 3rd baseman or left fielder against runner. The 3rd baseman had to field and make the long throw over to first and beat the runner. This was versus hitting the ball up the middle, where pitcher, second baseman or short stop seemed to be covering and the throws to first were more manageable.

This technique is erased as you go up the ladder, but it does help early players get some action if they seem to always be hitting straight into the defense. It also helps to eliminate hitting into easily turned double plays.

Rodger Bastien responds:

It's my view that it's mostly fortunate for the pitcher that the batter hit it directly to the fielder, with an assist to the defensive alignment, in some cases. In most instances, a batter is trying to simply make solid contact when facing a pitcher with outstanding stuff. When facing a pitcher who is struggling or faced with an at-bat that dictates situational hitting (i.e. man on 2nd no outs, need to hit to the right side to advance the runner) the batter is more likely to attempt to hit the ball somewhere specific. The defensive alignment plays a role due to the positioning of the fielders that is based on the advance scouting that each teams does which determines each hitter's tendencies throughout the season. Like so many things, this part of the game is more of an art than a science.

Laslo Minks remarks:

My belief is that it’s pure luck. You want to hit line drives, usually up the middle. And a good hitter goes with the pitch, you pull an inside pitch (if you are right handed) to left-field and an outside pitch to right. You want to hit it just over the infielders heads, but it is ridiculous to think that you are, for instance, trying to hit around the shortstop. The point of trying to hit line drives is that the horizontal velocity is the fastest and therefore most difficult to field. You hit line drives regularly and you will have a good batting average. You play the odds. If you hit it right to the shortstop or second or third baseman, that is just bad luck. Anyone who says differently is overthinking it.

Apr

8

Crew RaceProper preparation: Went to a boat race at St. Andrews recently and saw the senior crew rinsing and washing their boat one hour before game time. They said it adds a small fraction to their time and gives them pride. The importance of getting everything in place and order for your trading day, with every little thing, and every little extra and everything prideful is underlined. John Wooden's first meeting with his players where he teaches them how to wash their hands, and put on their socks, comes to mind.

Playing for keeps: Federer is having the worst start of a season ever, not getting into a final in his last six tournaments. Before he started competing for real, he played a series of exhibition matches with Sampras, and each went three sets into extras. He obviously was fooling around, trying to keep it interesting and this kind of "customer's game" is hard to extinguish — even the memory of it is odious for competition. How many times does a market player put on a reaching trade, for the fun of it, or just take a roll of a dice with a small edge after a series of big wins, and how often does he end up like Federer this year?

Pat EwingHall of Fame: Patrick Ewing was inducted into the Hall of Fame yesterday, and certainly Doc Greenspan would have been a better choice. His grotesque and sullen disposition, his outside game that prevented any rebounds, and the general aura that he created for the team during his last eight years there must have had much carryover effect on why the Knicks are still the world's worst. Sort of like the residue of the bridge player on the take-no-prisoners brokerage house that recently saw a 90% decline in stock price.

Success factors: The Memphis-Kansas game illustrates a myriad of truths about markets. First, the little things that were done wrong made the difference between success and failure. A Memphis player argued with the referee and saw Kansas score an easy basket while he procrastinated. How often does one argue with the floor, or the counterparty and lose much more than he would have by calling it a day? If litigation is involved, know that the legal costs in the typical court case are far greater than your net expectation.

KansasLittle things: The game decided by little things and letting up with Memphis ahead by nine with two minutes to go. It reminds me of days like today where the market was way up as of 1:00 or 2:00 or 3:00 and everything was grand for the bulls, the sun was shining, the water was beautiful (a la Memoirs of a Superfluous Man) and then one minute after the close, the market had dropped 2% from its three month high, a 20 day high, which, incidentally, took the longest to realize of any in the last eight years. One also notes that Chalmers seems to be the best thief in recent memory, and his four steals meant the difference between success and failure. Specialization in one market, one part of the day is often sufficient to give one the victory.

Steve Leslie adds:

I am reminded of the saying "G-d is in the details." This is generally attributed to Gustave Flaubert, who is often quoted as saying, "Le bon D-eu est dans le detail." Others have used this quote, such as Michelangelo and Le Corbusier. Paradoxically it is quoted by the architect Ludwig Mies Van de Rohe as "The Devil is in the details." Interestingly Mies and R. Buckminster Fuller are credited with the saying "Less is More." If one wants to get a healthy dose of attention to detail, watch a pit crew at a Formula One race. It is true poetry in motion. They can fuel a car and change tires in less than eight seconds.

Rodger Bastien comments:

I would agree that the difference in the Memphis-Kansas game was preparedness. The sequence leading up to the three-pointer by Chalmers that sent the game into overtime was badly mishandled by Memphis coach John Calipari and he knew it. You can't afford to overlook anything lest it cost you the game and it was evident that he didn't make it clear to his kids just what to do in that situation (which was clearly to foul to prevent the three-pointer). What's more, an immediate timeout should have been called with two seconds remaining in regulation — again, coach's fault. Reminds me of the poor judgment I too often demonstrate in fast market conditions…

Tim Hesselsweet suggests:

Be aggressive. The passive play of Derrick Rose, who advanced the ball beyond midcourt then promptly passed and ran to stand in the corner, diminished one crucial source of leverage for Memphis. Rose destroyed Texas's 1st-team All-America PG Augustin in the regional final and took advantage of UCLA's guards by penetrating to either score or draw additional defenders and find open teammates for easy baskets.

Alan Millhone notes:

Sean KempSaw on the news a current NBA player has 10 children by eight women and has not paid his support payments to any of them. Not a good example for any young athlete who aspires to greatness in basketball or anything else ! This player might get into the "Hall of Shame."

Nigel Davies assays:

There are two different forms of preparation here; technical preparation and psychological preparation via ritual. Washing the boat is technical whereas John Wooden's hand/sock washing would have been mainly ritual, which is not to underestimate its importance. Rituals provide valuable triggers to enter a particular state of mind.

At the chessboard both are used. For example one might study an opponent's games and/or prepare a particular variation (technical) before going to the board at a prescribed time (e.g. five or 10 minutes before the start), carefully filling out the score sheet, cleaning one's glasses or some such (all mainly ritual).

Good preparation includes proper consideration of both of these. And one of the main strengths of experienced players is that they often have their preparation routine well worked out.

J.P. Highland offers:

JuventusEuropean soccer is played in a way that guarantees the cream always comes on top at the end of the season. The winner is the team that obtains more points after a long 38 game season. The only problem with this system is that it leaves almost no chance for surprises. Real Madrid and Barcelona have won most championships in Spain, so have Juventus and Milan in Italy and Manchester United and Liverpool in England.

American sports are more socialistic, impose salary caps, revenue sharing, give a chance to bad teams to draft before winners and have a playoff system that gives a higher probability of having a winner th product of randomness by inviting underdog teams that are graciously called wild cards that can later become champions like the New York Giants.

Speculation is closer to the European system. You can get lucky some days and reap a good reward but in the long run the lack of sound money management and a strict trading plan will put you out of business.

Clive Burlin recounts:

I took an introductory flying lesson recently. I was shocked at how much checking gets done before you roll down the runway. While the instructor was going around the plane checking the propeller, flaps, gas, tail, etc., I was thinking to myself "you know, if you did half the amount of prep before putting on a trade, maybe your results would be a bit better." This thought was totally reinforced once inside the cockpit where the pilot sat with this long check-list seemingly checking every button and switch there was. A few more checks before take-off and we were barrelling down the runway.

Scott Brooks recalls:

Some years ago, I was listening to an interview of several NBA players and the focus was on Patrick Ewing. One thing all the players agreed on was that Ewing was cheap. He never picked up any tabs. Don't know if it's true or not, but I found it interesting that the biggest personal matter that they all agreed on, and spent a inordinate amount of time talking about, was his "cheapness."

Mar

18

BinocularsOne of the connections is viewing the market as a super scout, watching and measuring all events in other markets as an adjunct to how to play the current market game. As I have noted before, the super market scout, all seeing and sentient, noted what happened in the three final days of the insider trading decline at the big French bank, and noted a big down open on Monday, and a big down follow up, which was greeted by and was contemporaneous with two huge 5% opening Wednesday, and declines on Tue, and Wed Jan 22 and Jan 23 in the US each followed by an up 5%. This was finally completely recapitulated today, and it was like the Super Scout had seen an opportunity to unleash much capital from the slow moving and undercapitalized to support the infrastructure and then took it.

What other scouting tips does the Market Scout see as it scans the occurrences around the world and looks for opportunities?

Rodger Bastien adds:

The Super Market Scout reminds me of the great "bird dog" scouts I have known whose job is to identify amateur talent for Big League baseball clubs The truly great ones first and foremost look beyond the numbers of a player to figure out what is really going on with him. The sand lots are full of players who hit .400 but can't hit a curveball or whose bat speed won't allow him to turn on a pitch and drive it; pitchers who mow' em down at the Division II level whose fastball never touches 90; great college power hitters who hit 20 home runs with aluminum bats whose power will not translate with the less forgiving wooden bats used in the pros. On the other hand, the wild, hard-throwing lefty who walks ten a game or the raw-boned, 6'4" 240 pound first-baseman from North Dakota who crushes the ball but strikes out every other at bat are the treasures, whose upside is limitless and flaws are fixable. The Super Market Scout hopes that his competition focuses on the "noise"– the gyrations, the trumped up economic activity and bail-outs et al that all of the amateurs focus on. Like the Bird Dog Scout, he will quietly look beyond the numbers, where the true value lies.

Mar

11

The moves this Friday, Monday and Tuesday remind me of a good baseball swing, or for that matter what any good athlete does vis a vis economy of motion. Recapitulating exactly the Friday, Monday and Tuesday of the big French bank frontrunning move

Rodger Bastien replies:

The bigger question is whether this batter does what I too often did, which is once I found my stroke, I swung harder, many times losing my rhythm in the process.

Stefan Jovanovich adds:

Chili Davis says he has the same problem. Each time he walked up to the plate, he would mutter to himself "70%, 70%." That was how hard he should swing to allow his stroke to do its work. That didn't keep him from over-swinging or from displaying his enormous strength when frustrated, but he says it helped. Once upon a time at Candlestick I saw Davis, while walking back to the dugout after striking out, raise one knee up to waist level and break his bat into two pieces. He didn't break stride.

Jun

11

 This evening, I watched my ten year old daughter's softball game. She played a very good game and her team won 22 - 16 (yes, that's softball, not football).

As I watched them play I figured out how to easily win the game. All the players had to do was stand there and never swing the bat under any circumstances. You see, the pitchers at this level are simply not able to throw three strikes in seven pitches. They would have walked every one. Of course the league only allows a maximum of seven runs per inning, so we would have had to play defense some of the time.

So, when our team went out to pitch, I would have told them to forego the windmill pitching action and just do a slow underhand lob over the plate for strikes or close enough to force the other team to swing. The other players would have struck out some of the time, but otherwise, the only way to get outs was to get them in the field. Still the other team would have been limited to seven runs in an inning. Therefore, in order to win, all our team would have to do is limit the other team to fewer than seven runs per inning.

Nigel Davies comments: 

You don't think they missed out on a great lesson in flexibility and adaptability, rather than going through the motions of what they thought they should be doing? As Sun Tzu stated, "To subdue the enemy without fighting is the acme of skill."

In my experience playing-strength is fostered first and foremost by the pursuit of victory, with mentality and technique improving to meet new challenges. Those who focus on appearance and style usually turn out to be weak posers with no real substance behind their moves, just shadows of what a good player should be.

Rodger Bastien writes:

I am sure this piece was all written tongue in cheek. As a little league coach I am on a personal crusade to de-emphasize winning vs. learning to play baseball in K-6th grade. Granted, you could "win" using the methods you describe but my team "lost" a game last week by taking the exact opposite approach.

After witnessing a couple of innings of a an endless walks I could see a palpable lack of interest amongst all of the players. I instructed my players to go up there hacking and I’ll be darned if we didn’t rattle off 9 straight hits before the ump declared the "6 run maximum per inning" rule with no outs. In the bottom half of the inning our opponents maxed out on runs without taking the bat from their shoulders.

We lost the game but afterwards you would never tell that my guys were the losers from the pie-eating grins on each of their faces. In baseball, as in life, there is much more to be gained by taking your hacks than standing there with the bat on your shoulder.

Apr

10

 Previous posts have focused on signals that baseball players make before the pitch, and the efforts that teams make to hide their own signals and decode the enemies'.

I have often thought that there are hidden signals in markets. My favorite signal is silver, which I call the omniscient market in that whenever something is good or bad it seems to hit the silver market first. Recently, I have been discovering the hidden signals in the Dow Jones, which seems to go the 50 and 100's during the day, much more than randomness would suggest. Another hidden signal is the movement in bond prices that always seem to predate a major move in stocks. Another one is the Israel market, which I have found quite useful in predicting where the US markets will waft.

In particular the move in the Israel market on the Tuesday morning before the war in Lebanon started was or should have been quite helpful in predicting the war. I note that the Israeli market at 1004 is at an all time high. I predict a good first day of the new quarter based on this signal.

Rodger Bastien writes:

I have spent some time in the last day or two trying to discern whether there are predictive signals one can ascertain prior to a baseball game that might parallel what has been mentioned here, as one seeks an edge in determining how activity in one market may be a precursor to a particular move in another. I would compare this to the preparation that a hitter or pitcher goes through prior to a game studying previous starts by said pitcher or at bats for hitters.

There is a tremendous amount of film study these days due to the availability and the predictive nature of the human animal, that has been successful and will be repeated. Taken further, it's no secret that crafty veteran pitchers will often change their pitch patterns, recognizing that success is often found by throwing the unexpected pitch. The truly clever don't wait until their pattern has been revealed before they change the pattern. Just as a pattern of trading is seldom successful in perpetuity, so goes a pattern of pitching.

Much has been made of successful pitchers pitching "backwards," that is to say, throwing a breaking ball on a fastball count (2-0, 3-1 etc.) and a fastball on a breaking ball count (0-1, 0-2 for example). Though not your classic example of signaling, it is certainly a great example of the importance of preparation and varying patterns to confuse the adversary.

Alston Mabry writes:

"Stylometry" is the use of quantitative methods to determine the authorship of written works. Methods have varied over the centuries, but much attention has been paid to a writer's use of unusual words or word pairings. The problem is that unusual words and word pairings are easy to mimic, should one intentionally seek to create a forgery.

However, because of modern stylometry's reliance on computers, researchers can now analyze a writer's use of very common words and word patterns. It turns out that these common words and patterns are much more subtle, tend to be generated habitually and unconsciously, and are, therefore, much harder to fake or to hide.

One thinks at least of the relationship between what is highlighted in the media, and what occurs in markets.

From J.T. Holley:

For what it's worth one of my favorite card tricks involving an accomplice is utilizing any of the four tens. You lay out ten cards making sure that one and only one of the ten cards is a ten. When they are set up you have it look exactly like the ten as such:

5H              2S

3D      JH      10C

6C      5H      KS

4D              7C

You simply ask the person involved in the trick to pick a card while your accomplice has his back turned. When your accomplice turns back around you start asking him "is this the card," "is this the card." He'll keep saying "no" until you give the hidden signal with the ten card (ten of clubs in the above example layout). You always must lead with placing your finger on the exact card that the person participating has chosen. The real magic though is when the person participating chooses the ten! Then your accomplice can guess it right out of the gate with the first guess. It never ceases to amaze me that very few people figure this out.

The Mistress might be playing the very same card trick as Vic mentions above. The Israeli market being the card the market points to first, then leads to let you know where the magic returns are going to be. Or could she have the ten chosen being the silver market whereas it is the one to be in first and right out of the gate?

Oh well, magic has it's own set of signals.

Easan Katir adds:

One hidden signal (perhaps hidden only to me) I've researched is stock option volume or increased implied volatility predicting a move in the underlying. An anecdotal example was GM in February. 30 February puts were extremely overvalued and stock proceeded to go straight down from 37 to 30.

Hany Saad writes:

This is very enlightening. One wonders why Vic thinks the Tel Aviv market is leading or helps predicting the American mkts. Now, for what it is worth, the best trader I know operates out of Haifa and we correspond daily. His very rare recommendations are money in the bank.

Kovner had a theory that the Russian markets were the same and his theory was that they open our mail.

Mar

21

 Signals are interspersed within most of the games that I love. Nowhere are they more prevalent than in the games of baseball and investment markets. They largely go unnoticed by the pedestrian observer, the complex communication between the important players belying the perceived orderliness of the contest. However, to ignore or miss a signal often results in dire consequences, loss of a game or loss of your capital.

Many people decry baseball as dull or boring compared to more fast-paced games like basketball or football. Perhaps they are unaware of the action taking place each moment of each inning of each game. As a pitcher begins the wind-up, rather than the beginning of a play, it is instead the culmination of that play. The key participants have performed their secret pantomime designed to communicate, deceive, or reinforce the intentions of those players on their respective side.

Typically, the manger of the team in the field has signaled to the catcher the type of pitch he wants thrown to the batter through an elaborate series of signals; the catcher then signals to the pitcher (usually one finger for a fastball, two fingers for a curve, etc.); and the middle infielders will signal the outfielders with an open mouth hidden behind their fielder's glove for a fastball and a closed mouth for an off-speed pitch. For their part, the team at bat has their own communication system. Most hitters are allowed to determine which pitches to swing at, however, you will notice that before virtually every pitch the batter will step out and gaze at his third base coach. That is because his manager has signaled the coach before every pitch and he has the ultimate discretion as to what the batter can do. Many managers may want the batter to take (not swing) at a pitch in a count (2-0, 3-1) to work a walk. At a 3-0 count a manager may give a hitter a "green light" to swing, knowing the pitcher may send one down the middle expecting the batter not to swing.

With runners on base, the manger may signal for a steal, a bunt, or a hit and run. All of these occur simultaneously with the covert communication from the other dugout. Adding intrigue to the mix, the majority of the signaling being done is designed to deceive and mislead. A manager resembles a madman with a nervous tic as he goes through his repertoire of touching, tugging, and poking at himself, 90% of which is absolutely meaningless. However, once he displays the predetermined indicator (maybe it's the touch of the cap or the tip of the nose), the player is alerted that the signal or play is on. Missing this important part of the signal means the play falls apart.

In the investing arena, signals play an equally vital role in our success. What at first glance appears to be a simplistic exchange of capital for goods is instead rife with misinformation and deceit and head-fakes and head-games and attempts at whatever sleight of hand may separate a person from his stake in the game.

As we used to say, there in only one rule and that is that there are no rules. In baseball this serves as a proper excuse for notorious trickery such the spitball and the hidden ball trick. But for investors the stakes are so high that to ignore the markets signals is to welcome financial suicide. And that's not to be confused with the suicide squeeze.

Vic comments:

This is a brilliant post of yours. The stuff on baseball is very poignant, and the stuff on the markets is very suggestive — which is where I come in. Some day, when we have time, we should do it the right way, and have readers digest publish us. We should reference Dickinson's book on this, with his hundreds of layers of deception and coaches who are expert at stealing signals, and all the mechanical devices that have been used. If you don't have his book, which I guess you may not, let me send it to you.

Signals in the markets often come with the lead off batter causing a big move. There are signals before big meetings, like there were today, designed to make you think a bunt is coming when a big hit is really on the cards.

Gabriel Ivan adds:

This interview of the "wild man" by one of his employees is from last winter, but it illustrates the topic nicely. I posit here that these signals are not very powerful, though, and the dynamic hedgers have a stronger impact on price.

Feb

22

 The psychology of the market is what has always drawn me to it and I find it very interesting how this thing we call "the market" has so many diverse faces. Most interesting to me right now is how intuitively it is a market of which you should be leery.

But although you can cite so many sentimental measures that point to topping action, the sentiment I feel is anything but that of a toppy market. This from the little guys in Middle America who are so reliable.

Nov

14

I received a book recommendation from Stefan Jovanovich who, like Jim Sogi, utters something of profundity whenever he speaks. He recommends historical books by Peter Green and J. S. Holliday as models of good scholarship. I call on him and others for some good historical books that I can read and augment my library with and share with my children, who are studying history in school, and regrettably have been brainwashed by politically correct curricula, starting with Squanto as the archetypical American hero.

I recommend the book Lessons of History by Will Durant as well worth reading for its lessons on markets as well as a honest attempt to review the lessons from a life long study of the sweep of history in conjunction with this request.

Alston Mabry replies:

Inventing America is a textbook that has an interesting approach and might be an alternative for homeschoolers:

Book Description; W. W. Norton presents Inventing America, a balanced new survey of American history by four outstanding historians. The text uses the theme of innovation–the impulse in American history to “make it new”–to integrate the political, economic, social, and cultural dimensions of the American story. From the creation of a new nation and the invention of the corporation in the eighteenth century, through the vast changes wrought by early industry and the rise of cities in the nineteenth century, to the culture of jazz and the new nation-state of the twentieth century, the text draws together the many ways in which innovation-and its limits-have marked American history.

Check out the TOC or get the second edition here or get a used copy of the first edition for a nominal amount.

Some other longtime favorites are The Making of the Atomic Bomb by Richard Rhodes, The Devil’s Horsemen: The Mongol Invasion of Europe by James Chambers, and King Harald’s Saga: Harald Hardradi of Norway: From Snorri Sturluson’s Heimskringla by Snorri Sturluson. You can get the wiki overview here, but the saga itself is a quick read and an amazing story.

Another audio book I have thoroughly enjoyed listening to on cross-country drives is Simon Schama’s A History of Britain. The audio book is in 3 volumes. Schama, a professor at Columbia, is such an excellent storyteller that I would pick up anything he has written. The television series of the same name is also available on DVD and is outstanding.

Schama’s most recent work, Rough Crossings, is about the British and slavery during the Revolutionary War: You can hear Schama talk about Rough Crossings on Book TV.

Stefan Jovanovich replies:

Simon Schama has the gift of charisma. When you watch his narration of the video documentary of the History of Britain, you are instantly aware of it. The trouble is that his histories are not to be trusted. At their worst they are little more than royalist propaganda. Too often he writes the story that the Queen would like to read, not the one that happened. Even though Cromwell was the first head of the United Kingdom to allow Jews to openly practice their religion, Schama finds the Great Protector to be a far greater villain than any of the crowned heads who so routinely persecuted the children of Israel. He is equally severe in his criticisms of those greedy speculators of the Dutch Republic who left Spinoza free to grind his lenses; in Schama’s eyes, those Dutch Reform bigots were guilty not only of inventing capital markets but also of buying too much stuff. The common thread in Schama’s works is the notion that sectarian Christians, with their notions of free markets, are to be feared as dangerous, greedy fanatics who will upset the natural order of the world. The meme continues with Rough Crossings. Schama makes a great deal of the fact that the British offered freedom to slaves who would join the Royalist forces in fighting Washington’s Army while failing to note that the Confederates ended their struggle with the same concession to the dire necessities of war. In general, Schama finds the Christian deism of the slave owning signers of the Declaration of Independence proof of their hypocrisy and, by extension, that of the American nation as a whole. The fact that, for another half century, neither the Archbishops of Canterbury nor the Kings of England had any problem with sanctioning and enforcing slavery in their remaining territories is somehow put aside. So are the origins of the anti-slavery movement in both England and America (those dreadful Methodists). The nearly two centuries old Anglo-American naval alliance (the longest-lived military confederation between democracies in recorded history) had its origins in the anti-slavery patrols off West Africa by both fleets that began in the 1820s. Those were initiated as a political concession in both countries to those same cross-bearing nutballs who thought that the “common” people should have the right to vote even if they did not own a carriage. Ain’t history grand?

Tom Ryan suggests:

Daniel Boorstin’s three books, The Americans, written before 1973, provide a refreshing take on American history in my opinion. I recommend the third in the series, “The Democratic Experience”, which covers the 1870-1970 period in American History. It is unconventional in the sense that it focuses on the stories of the individuals who built, invented, and created this country, the untold stories of the individuals as it were, rather than the typical history of Washington political leadership that is regularly fed to children in grades 4-12.

Steve Ellison adds:

I highly recommend British historian Paul Johnson’s A History of the American People, which goes into detail on many topics, including the relentless economic growth that occurred almost from the outset. A small sample:

By the third quarter of the 18th century America already had a society which was predominantly middle class. The shortage of labor meant artisans did not need to form guilds to protect jobs. It was rare to find restriction on entry to any trade. Few skilled men remained hired employees beyond the age of twenty-five. If they did not acquire their own farm they ran their own business.

Rodger Bastien responds:

I just completed Rubicon: The Last Years of the Roman Empire by Tom Holland. I highly recommend this historical narrative of the final days of the Republic which deals with primarily the years 100 B.C. to 14 A.D. For me, the book brought to life this period which I knew little about but was arguably as important to subsequent civilizations as any period before or since. Caesar, Marc Antony and Cleopatra may have existed centuries ago, but to me those centuries somehow feel a little shorter.

Gibbons Burke replies:

I am finding I am enjoying first-person narrative accounts of historical events and times, so, with that in mind:

and one that’s not a first person, but which is fascinating and has many meals:

John O’Sullivan replies:

I recommend two books by Anthony Beevor: Stalingrad and The Fall of Berlin 1945. Both mesh grand strategy with individual detail and amazing narrative momentum. I also like three Middle & Far Eastern travelogue/history/biographies by William Dalrymple : Xanadu, From the Holy Mountain and White Mughals. Dalrymple has created his own genre and its a rich mix.

MacNeil Curry replies:

I would have to recommend Bury My Heart at Wounded Knee: An Indian History of the American West. Not only is it a fascinating account of the West from a different perspective, but it highlights quite well that there are two sides to every story and that both must be carefully studied before one can truly come to there own conclusion.

Tyler McClellan replies:

Speaking of John Wesley Powell, Beyond the Hundredth Meridian: John Wesley Powell and the Second Opening of the West by Wallace Stegner is a book with many practical lessons for investing and life that used to be required reading for the history of the American West.

Craig Cuyler replies:

My favourite historical novels are without doubt the three part trilogy by Neil Stevenson called the Baroque Cycle. This body of work, over 2500 pages long, covers life in 17th-century in England, Europe, Russia with special reference to natural philosophy & science. Stevenson weaves in his ideas about currency, calculus in speculation which took place around the central characters like Isaac Newton, Huygens, Hook, Leibniz. The courts of Louis XIV in the battle for the monarchy in England feature strongly. The Baroque Cycle is to science what the Lord of the Rings is to fantasy. Fantastic read!

Oct

23

Kenny Rogers, pitching ace of the Detroit Tigers, is today an overnight sensation at the ripe old age of 41. In 2005, despite pitching with All-Star credentials after a 17 year career with seven different clubs, he achieved notoriety when he shoved a cameraman who was, he felt, too close to his mug while documenting a disagreement Rogers was having with his then employer (Texas) over not extending his contract. This one indiscretion in an otherwise sterling career threatened to render his accomplishments insignificant as he became the poster boy for what many of us hate about pampered athletes today. The story could have ended there… but it didn’t.

Resurrected in Detroit, leading a band of misfits who had not had a winning season in 12 years, he has become the beating pulse of a team best defined by their heart. What’s more, judging by the emotion he’s displayed on the mound and in the post game interviews, I sense he understands that the only true road to redemption is to shock the world, to achieve such amazing results that the resulting antiseptic closes the previous wound so completely that though the scar remains, it becomes a remembrance of survival, his badge of courage, rather than the open sore it once was. Twenty-three scoreless post-season innings, heady stuff, surpassed only by the likes of Christy Mathewson (27 innings in the early 1900s).

 

Oct

18

Danny Litwhiler, former St. Louis Cardinals centerfielder and my college baseball coach, was fond of saying, “Liars figure and figures lie.” Therein lies the problem with Moneyball and its application to baseball, especially in the post season. I find it bordering on ridiculous that talking heads insist on trying to handicap teams in the post-season based on measurables because to me, a baseball game — more than any sporting event — is dictated by the many intangibles. A ballgame turns on too many broken bat singles, home runs that graze the foul (fair) pole, checked swings that are ruled a strikeout, attempts at diving catches that roll to the wall; the list is endless and the difference between being a hero or a goat is the width of an eyelash. I love baseball because you can at once spend hours dissecting the mountain of available statistics or you can be absolutely simplistic in your analytical approach. I choose the latter. In the post-season, good pitching will always trump good hitting. I think that who wins or loses has more to do with who gets on a roll in these short series than empirical comparisons based on the 162 game marathon of a season which creates the compilation of those statistics. That’s my analysis. The rest is statistical noise, fodder for water fountain discussion and “Baseball Tonight” on ESPN but not much else. These games involve way too many variables to be predicted and to me it’s the convergence of the multitude of these variables and the impossibility to predict them that creates a ballgame.

Further evidence that empirical analysis of baseball is often fruitless in last night’s 4-2 Cardinal victory:

1. Chris Duncan became only the 3rd left handed pinch-hitter to homer against a left handed pitcher in post-season history.

2. Cardinals pitchers have now allowed zero runners in scoring position (RISP) to score in 31 chances over the last two play-off series.

3. Jeff Weaver, released by the LA Angels (in favor of his brother), 8-14 in the regular season, is now 2-1 with a 2.16 ERA in the postseason.

4. Jeff Weaver, released by the LA Angels (in favor of his brother), 8-14 in the regular season, is now 2-1 with a 2.16 ERA in the postseason.

P.S. You had to believe that the insidious nature of these markets would repel us from the comfortable (momentary perch) well above 12,000 this morning. Nonetheless, I share in your congratulatory mood in once again having your bullishness rewarded.

Sep

27

The passing of golf great Byron Nelson reminded me that with all the games we play our legacy will still be the imprint we leave on our fellow man. Reading about his accomplishments on the golf course is mind boggling … 11 straight victories and 18 in total in 1945 with a scoring average of 68.33, 113 consecutive cuts made in his career and several major championships to his credit. However, this was only a small part of his legacy. The true measure of the man lies with his charitable nature, notably the $94 million dollars raised for various charities by his PGA tour event in the Dallas area.

One anecdote I heard tells you all you need to know about the man. Apparently he and fellow pro Ken Venturi used to playing various matches at clubs throughout the nation. It is said that the first question he would ask on the first tee was what was the course record and who held it. If it was held by the local pro, he refused to eclipse it. He was supposed to have said," He lives here, we are just passing through." He passed through leaving very large footprints.

J. T. Holley adds:

One thing that isn't getting the "wow" headlines or, it's just in passing that it's mentioned, is the fact that at age 34 this Great Man had the inner courage to say "I'm done", and walk away at a very high point. This reminds me of the other J. T.'s lyrics "the secret to life is enjoying the passage of time". Mr. Nelson with a lot of chips on the table and a grandiose set of accomplishments decided that being at home on the range was more meaningful to him as an individual than continuing a sport that he had dominated. The irony is that many probably thought it was too early and he had much more to earn, the greater legacy is that he got out to be able to enjoy his family and watch his "legacy" compound for another 60 some years "enjoying that passage of time". Talk about a great example of create, buy and hold, and watch compound.

How many money managers are willing at a young age to step aside after compounding client fees and incentives in a relative short amount of time, to devote time to what they truly feel as individuals is really important?

David Higgs adds:

So often it takes the sad passing of an individual before his/her accomplishments are widely magazine-ized or hard bound. Wow, he did all this in 1945. Yet who are the Byron Nelson's of 2006? One immediately thinks of Tiger Woods and rightfully so. Yet, why is it so often that only in hind sight are such events/accomplishments recognized. The truth is, there are many Tiger Woods on the courts, the fields, the lanes, the diamonds. Thanks to technology, the mechanics of individual super stars of their fields are studied to the point of ultra refinement. By studying swings, strokes, strides, young muscles can begin to emulate those of the great. I suspect there will be many Byron Nelsons and the likes to come. We yearn our roots in many respects.

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