May
16
Preakness and Stocks, from Alan Millhone
May 16, 2009 |
Do horses and stocks have something in common? I note talk that Mine That Bird might like a muddy track to get that edge over the other horses running. Is the study of the racing tabloids like the study of stocks? Is the jockey viewed like the CEO of a company you see promise? Is horse betting like placing a bet on a stock to perform well? What can the market trader learn from what leads up to the actual race?
James Lackey comments:
Oh hell yeah. The poor track conditions give the lesser funded teams a chance to win. When it's easy for everyone to make a mistake, its easier to capitalize.
When conditions are perfect, the markets are in a beautiful, high pressure, low wind, sunny up day, only those with unlimited capital can outperform. Unless of course we juice it.
The markets today are seemingly much improved vs. the Katina flooded out race track from last season. Yet vs. most years, it's quite sloppy. A good chance of rain at any moment, and when the sun does shine the humidity is miserable, the track is sticky and its difficult to breathe. It is a perfect situation for the fast movers that can adapt quickly.
Yet, one must be very careful going for a victory. One false move, the hole closes, we must get off the horse quickly, or come up lame. Run an amateurish race, you can run the horse into the ground.
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Here are some lessons in horse racing I can think of which might apply:
There is an old saying "That is why they run the race" The winner of the Kentucky Derby was one of the longest of shots in history. Meaning even the best minds cant predict things in the short run and the crowd can be very wrong on occasion. Bubbles can be highly destructive.
There are many undercurrents in horse racing. Weather, track conditions, etc. that can affect the run that day. Once again in the short run racing like poker is very unpredictable. Variables such as jobs report etc. can affect a daily trading session greatly. Some stocks and vehicles do better under different conditions.
The favorite in the Derby failed miserably. Typical actually. Some reasons could be since 3 year olds run, there may not be enough information to adequately determine the likely success of a horse in a race. Plus the size of the field, typically the largest of the Triple Crown diminishes the chances of success and outperformance for the favorite. Suggestion, stay away from momentum stocks and IPOs. Growth vs Value. and stay away from very young companies and money managers that have not been seasoned enough or tested under grueling conditions.
The favorite in the Derby has not been heard from since. Beware the hype and hysteria of the new and improved mousetrap.
Luck plays a huge role in the short run. In the Derby, a hole opened up so Mine that Bird could fire through it. In this case, preparation met opportunity.
No matter how high the pedigree if a horse does not want to run that day, nothing is going to change that. A jockey just won't change that. If a company stinks, the CEO won't be able to change that. If the market is gloomy the likelihood your stock will do good is unlikely.
The triple crown is contested across 3 different lengths. There are only a few truly exceptional horses just like stocks. There just are not that many great companies.
Calvin Borel won the Derby on Mine that bird and the Preakness on Rachel Alexandra. The importance of a top executive is highly overstated. Nardelli leaves Home Depot amidst the real estate crunch, and boards Chrysler and sits on top while they seek bankruptcy.
Diversification is important. I bet a tri box by putting $24 on 4 horses and cashed a $108 ticket. Otherwise $1 would have paid $216 if I had gotten the top three in order. More diversification, less risk less reward.
We only remember who won the race, Nobody remembers the losers. Keep exact records, to determine you success. Numbers don't lie but memories do.
Enough for now.
Mine That Bird having had to run so wide makes you wonder if the Louisiana jockey might have made a difference with his patience on taking the inside track. Probably was too many horses on the rail like Mike Smith said. That horse is so small that he’s like Seabuscuit and will be around for a long time since a gelding. Should do well in the Belmont.