10/26 Weekly Update: How Baseball Teaches Us to Cope with Losing
by Zach Marsh on Oct 26, 2018
S&P 500 -3.99%
10 Year Treasury +1.01%
Weekly Update: How Baseball Teaches Us to Cope with Losing
I grew up a baseball fan. I still am a baseball fan. But, baseball can be an extremely frustrating sport to play and to watch, and I’m not talking about how long the games last. To play or to watch baseball is to accept that losing is a fact of life, and that the success of our favorite player or team is subjected to extreme bouts of randomness. Some of this is because the difference between success and failure in baseball is razor thin. As Crash Davis put it in Bull Durham, “Know what the difference is between hitting .250 and .300? It’s 25 hits a season….There’s six months in a season, that’s about 25 weeks….you get a groundball with eyes…you get a dying quail, just one more dying quail a week and you’re in Yankee Stadium.”
That razor thin difference between All-Star and bum, or between World Series contender and getting next year’s first pick in the draft is what can drive baseball fans crazy, but it’s what also drives baseball’s obsession with statistics. Baseball, like the investment world loves statistics, because baseball, like the markets have thin margins separating success and failure. When differences are slim, statistics can help make sense of what is going on. However, statistics don’t help us much in short-term situations.
Take, for example, the Boston Red Sox. The Red Sox now hold a 2 game to none lead in the World Series. They were the best team in baseball over the 162 game season, winning 108 games, for a winning percentage of .667. Their record ranked tied for 9th all-time in baseball history, so maybe it’s no surprise that they are currently two wins away from World Series champions. But, because of the set up of baseball’s postseason it could very conceivably have gone differently.
To reach the World Series they had to win two other postseason playoff series. The first was a best of 5 series, where the winner had to win 3 of 5 games. The second was a best of 7 series. In order to reach the World Series the Red Sox had to prevent doing something they did 11 times during the regular season, losing 3 out of 5 games. After the marathon season of 162 games, designed to determine who is the best team in baseball, Major League Baseball condenses it down to a sprint. A game controlled by statistics, measured by lengthy data sets, ultimately bestows glory based on the outcome of just a few games. That can be frustrating. Just ask the 2001 Seattle Mariners who had the 2nd best record in MLB history, yet lost 4 games to 1 in the League Championship Series, failing to make the World Series.
Similarly, we can do the same thing with our investment portfolios. The S&P 500 has a monthly winning percentage lower than the Boston Red Sox; only 60% of months finish higher for the major market index. But in the 40% of the months that the market is down it’s easy to lose sight of the fact that this is a marathon and not a sprint. Loss and fear narrow our time horizons. Like George Steinbrenner, firing managers annually, when things get uncomfortable our urge is to hit the eject button. But we need to remember that we build these strategies based upon long-term statistical results. Our desired returns can only be realized if we hold them for a length of time resembling our statistical measuring stick. Just like baseball, it can be frustrating at times. No one likes the feeling of losing money, nor the feeling that we are subjected to randomness. But, unlike baseball, we don’t have to face arbitrary short, postseason series.
For those interested, I will be adding some additional market commentary to our blog page tomorrow morning (see the link below).
Thanks for reading,
Zach and Dave
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