Taking the “Fun” Out of Baseball and Investing

Taking the “Fun” Out of Baseball and Investing
Dec

12

2017

Taking the “Fun” Out of Baseball and Investing

The Application of Odds Theory is making Major League Baseball Boring. But as Guys like Jim Crane, Charlie Munger and Warren Buffet know, Boring can pay Big Dividends.

In 1999 I founded this firm with the intention of specializing in Selling Options. What you may not know is that at that time, I worked with a group of futures traders. They came with me to my new firm because they liked me (I think), not because they were particularly enamored with the option selling idea.

MoneyBall and odds theory wins. Just ask Jim Crane and the Houston Astros.


Their resistance to this concept became clear one fall afternoon as I was reviewing trade ideas with one of my top clients.

“I like selling another group of these natural gas calls,” I advised him. “They’ve done well for us this quarter.”

“Aw Jim,” he said, “why don’t we look at the Bellies? I think they are getting ready to pop.”

Perplexed, I asked, “Al, these options have expired for you three months in a row. Why don’t you want to make some more money on them?”

“I suppose if you want to sell a few, go ahead. But to me, it just takes all the fun out of it.”

FUN! I’m trying to help this man build a futures account based on solid, provable odds theory – winning based on mathematics, and he’s more concerned with having fun!

That’s when I knew we had to stop working with futures traders and start helping mainstream investors instead.


In your game, there should only be one exciting time – at the end of the year when you get your 1099.

Fast forward to 2017. The Wall Street Journal ran an article about Major League Baseball suffering nearly the same dilemma. Baseball isn’t as FUN as it used to be. While that’s bad news if you’re a baseball fan, there is a lesson here to be learned for every high net worth investor – a lesson that can be lucrative if heeded.

MoneyBall and the SLOW Pace of ML Baseball

We all know the story of Billy Beane, The Oakland A’s and the creation of MoneyBall. It was a great book, Brad Pitt made it a great movie and the topic has been a favorite of financial authors ever since.

MoneyBall is statistical evaluation in its purest and most ruthless form. Why hire a fan favorite home run hitter, when you can hire an unknown who gets on base 10% more often and strikes out 5% less?

Beane’s methods have become a resounding success. The embrace of data analytics has become mainstream in major league baseball. The result has been a more efficient game. Less mismatches between hitter and pitcher. Players positioned on the field to where the individual batter is most likely to hit the ball.

GRAPH:

MoneyBall has slowed the pace of the modern game. Bad for fans. Good for owners and managers attuned to it.


But all of this efficiency has created an unintended side effect. Major League Baseball has become B-O-R-I-N-G.

The 2017 season saw average game length increase to 3 hours, 5 minutes – an all-time high.

Time between pitches has soared to 3 minutes, 48 seconds, also an all-time high.

Major League teams now utilize an average of 8.4 pitchers per game. That’s more than 2.5 more pitching changes per game than there were 30 years ago. (*Source: The Wall Street Journal)

Strikeouts are up. Balls in play are down. Way down. All of this is making for a slower, less exciting game.

A Lucrative Payoff

Efficiency, however, can pay big dividends to teams who get it right. Just ask Jim Crane, owner of the 2017 World Champion Houston Astros.

Crane bought the losing Astros in 2011 and invested heavily in data analysts. He went big into the Moneyball game and it paid off in spades. In fact, Sports Illustrated, picking up on the trend, predicted in 2014 that the Astros would win the World Series in 3 years . This based on, you guessed it, data analytics.

As it turned out, SI was right. And so was Crane, for investing so heavily in odds theory.

Moneyball, when boiled down, is really nothing more than the application of odds theory . You play the player with the statistically highest odds of doing what you want him to do.

That may be good for managers – who get paid to win. But it is proving trying for fans. The slower pace of the game has younger viewers tuning out at an alarming rate. In short, playing the odds is taking the FUN out of the game.

moneyball


Moneyball, when boiled down, is really nothing more than the application of odds theory.

The question for you, the investor, is this. Are you approaching your investments with the mindset of the fan, seeking fun, excitement or “something to do?” Or are you investing with the mindset of Billy Beane?

Investing for Fun or for Profit?

Fans want to see Babe Ruth calling his home run. They want to see Pete Rose stealing home plate. They want to see batters charging the mound. Watching the manager change pitchers 3 times in one inning to get the highest odds match ups isn’t exactly competing with the Xbox.

But the lesson is clear. Efficiency wins. Odds theory WINS . Just ask Jim Crane.

As an investor, you must be careful that you adhere more to your Jim Crane instincts, and less to the whims of your inner Millennial.


…I knew I was on the right track when Al said it took the “fun” out of trading.

There is nothing wrong with trading a small account because you “enjoy” it. Nothing wrong with using the play money to take a flyer here or there.

But to quote Soros “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”

This same observation has been stated in different ways by both Buffet and Charlie Munger, amongst others.

Own The Casino

When it comes to protecting and growing the big guns, planning and allocating assets, it pays to stick with the odds. It pays to play MoneyBall.

If you want fun or interesting, go to the Casino.

If you want cold, hard cash, OWN the casino. Casino’s ALWAYS have the odds in their favor. They are about cashflow, not having fun. Casinos play MoneyBall.

If you want fun or interesting, go to the casino. If you want cold, hard cash, OWN the casino.


If you want fun or interesting, go to the casino. If you want cold, hard cash, OWN the casino.

Let Major League Baseball worry about how to make the game more exciting. In your game, there should only be one exciting time – at the end of the year when you get your 1099.

Selling options is PURE odds theory. Its MoneyBall in investing. Its simply a matter of taking applied odds and using them in your favor, over and over again – regardless of stock prices, the economy, interest rates or just about anything else. As an option seller, you OWN your own, personal Casino. And the oddsalways favor the house. Just like Soros. Just like Buffet. And just like Jim Crane.


Its simply a matter of taking applied odds and using them in your favor, over and over again – regardless of stock prices, the economy, interest rates or just about anything else.

Its how you build a world series portfolio – without trying to pick the next Apple, without trying to hit home runs, without even trying to guess market direction.

Its how I knew I was on the right track when Al said it took the “fun” out of trading.

We’ll do our best to help you continue to apply MoneyBall here – to target high percentage cash flow in a responsible, methodical manner – all year long, regardless of how BORING it gets! (of course, to me, collecting all those option premiums never gets boring.)

In the meantime, have a Merry Christmas, Happy Hanukkah, and/or otherwise Happy Holiday Season!

Regards,
James

(As a final reminder, we are already filling up for Q1 2018 New Account Openings. If you are considering an account, be sure to book your consultation this month prior to the holidays (more info on page 11).

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