Oct

30

2004: St Louis Cardinals
Regular season: 105-57
Best record in baseball.
Playoff record: 7-8
World Series: swept by Boston

2006: St Louis Cardinals
Regular season: 83-78
Worst record of all playoff teams, requiring a last-game loss by Houston to Atlanta to get into the playoffs at all, and Houston lost that game by out-hitting Atlanta 9-3 but leaving 11 men on base. Playoff record: 11-5
World Series: beat Detroit in five games

There must be some market lessons in there somewhere. Probably about randomness.

Steve Leslie replies:

I am not sure as to the market lessons here. However I do know something about playoffs in baseball.

Baseball is unique from the other two sports. In baseball the regular season record is completely meaningless. Due to one major factor. In the other sports, home field advantage is critical to getting to the championship series. In baseball, it is all about qualifying for the playoffs. After that, anything can and does happen.

Basketball is the most critical for regular season success. Without home field advantage you are swimming upstream the whole way. There is perhaps no greater factor in predicting a winner than looking at who has the home field advantage.

In football, if you have the best record, you are rewarded in two ways. First you get a bye week to get well and rested (and after 20 games this goes a long way to making your team well) and secondly, you don’t have to travel at all. When the regular season concludes, you can be at home for 3 weeks and only have to play 2 games. Plus your team is usually designed with the type of home field you play on.

Winning baseball games in the postseason is all about two things: Pitching and momentum. If you pitching comes out strong, like Boston two years ago or the Tigers this year, you can get on a roll and continue on a roll. Anecdotally, the Tigers lost their momentum by having to wait a week for the Cardinals to conclude their long 7 game series with the Mets.

Furthermore in baseball you can win a series by having your #1 and #2 pitcher carry the series. Who can forget Schilling bleeding in his ankle and giving the pitching performance of a lifetime. Or Kenny Rogers coming out of nowhere and pitching an amazing number of scoreless innings.

So if there are corollaries to be made to stocks, I will submit these two suggestions:

Pitching = earnings. great stocks have great earnings. They get their earnings from a great product with great margins. Microsoft in the 1980’s. Xerox in the 1960’s and Resorts International in the late 1970’s. I find it interesting that GE wanted to be #1 or #2 in the fields that they chose to compete. They were not interested in filling out the roster for the sake of filling out the team. The moral is if you have a great franchise coupled with a great product line, this will translate to success in the stock.

Momentum = trends. Stocks once they get on a roll, stay on a roll for some time. Look on Taser a few years ago. Oil stocks for the last year. Stocks tend to take on a character all its own when they become in favor.

There a many more examples and I hope I have stimulated some thought for additional corollaries.

Allen Gillespie responds:

Having the pain of being a Braves fan, I can tell you what it is. The regular season is long, so a deep pitching rotation is more important than a lot of good bats as the weaker teams you will beat with either and the stronger teams may or may not be focused on a particular night. So, if you have a strong 3 or 4 pitcher, then you will likely win one of those two games giving you a solid record. In the play-offs, however, pitching rotations are shortened so the best guys get on the mound more. In fact, it has been demonstrated that two really good pitchers are about all you need in the play-offs. You need, however, bats that go at least 5 deep with some moderate production 6-8. The one year the braves had 6 decent bats, they won, the other years, check the record. Painful.

The lesson I think is that for long pull trading, statistics and time work for you, while in short term trading and series being able to score quickly is critical.

Larry Williams responds:

Baseball has more stats than stocks; some are just obvious: for example, teams that reach the playoffs can be quite different later in the year due to injuries and trades — good to great pitchers are added to the roster of teams headed for the playoffs so the team then has more “mound power”. Case in point this year was David Wells going to San Diego.

It’s not just all numbers…

Steve Leslie replies:

My points are not assertions not supported by anything. I am not sure what you want to have counted. However if you want to go into greater detail about sports betting, I can tell you that it is an interesting exercise and in all likelihood futile because I have never met anyone who had a successful career as a sports handicapper. There are countless books on the market that one can research on the subject. I can not reference any since I learned years ago that sports bettors are losers.

I can tell you that the Yankee offensive lineup was so lethal this year that everyone went in thinking that they would overpower their opponents. They were overwhelming favorites to win the series. Until the pitching took over. In 2004 Boston was down 3-0 and won the series against the Yankees and went on to win the World Series. Thus momentum took over.

It is a fact, that good pitching trumps good hitting. This has been proven I don’t know how many times. Look back to Arizona Diamondbacks beating the Yankees and The Florida Marlins last World Series championship. Their team was loaded with young and great “arms”

As far as stocks are concerned. William O’Neill proved overwhelmingly that stocks that are in the highest quintile in earnings growth and relative strength outperform all other stocks. so when you combine these two facets your chance of success goes way up. especially in the long run which as far as I am concerned is a minimum of 9 months and longer. Read his books

Read William O’Shaughnessy book How to retire rich. He has some great strategies for success in selecting stocks. Look at an extremely successful no load mutual fund the Cornerstone Growth Fund offered by Hennessy Funds. This is a quant fund. or Bernstein’s book Against the Gods. The remarkable story of risk.

Other than that I am not going to type endlessly in an exercise to convince one of anything. If one does not agree with my points so be it.

As they say “That’s what makes markets.”

Professor Charles Pennington replies:

It is always tempting to say that some particular field, in which one thinks he has a special understanding, can not be approached through counting, but it’s usually not true, and especially not here.

For the examples here:

In baseball the regular season record is completely meaningless.

A rudimentary, better-than-nothing way to test this would be to look at the playoff series for the past N seasons and count the fraction of them that was one by the time with the superior preseason record. If it’s not substantially bigger than 50%, then that would support the claim.

[In basketball] there is perhaps no greater factor in predicting a winner than looking at who has the home field advantage.

Here you could take all NBA games played over the past N seasons and count the fraction that were won by the home team. If it’s greater than 50%, that would show that playing at home is an advantage. But is there “no greater factor”? Hard to prove, but you could try to DIS-prove it by looking at some other factor that might be important. For example, it’s possible that knowing which team has the best record over the past 100 games is more important. That could be tested as well.

Winning baseball games in the postseason is all about two things: Pitching and momentum.

For pitching: The question, I guess is whether pitching is more important than hitting in the post-season. You could take the past N series and count the fraction that was won by the team that had the better ERA during the regular season. Then you could count the fraction that was won by the team that had the highest number of runs scored per game during the regular season.

For momentum: For each series, calculate the fraction of games won by a team for the full series, call that Y, then calculate the fraction of games that they won when they also won the previous game, and call that fraction X. Now calculate X/Y for each series over the past N years. If X/Y, averaged over the past N years, is much bigger than one, then that would support the momentum idea.

Chris Cooper replies:

In contradiction, I have a close friend who has made a nice living for 15 years exclusively from betting football in Las Vegas. He is not a “handicapper”, though. He applies a computerized, brute-force strategy to tournament-style contests.


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