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Baseball and Investing

MJG
in Fund Discussions
Hi Guys,

I am watching a lot of baseball on TV recently. When I was much younger, I loved the game. My enthusiasm has cooled somewhat with age. In the school yard I remember making small change bets that overtime eroded my lunch monies and filled the pockets of the juvenile bookies.

The wager, with a few minor variations, went something like this. The bettor could select any 3 ball players for today's games. Those 3 players must get a total of 6 hits to win the wager. The payoff was 5 to 1 so a dime could get you 50 cents if you chose wisely.

Back in yesteryear, common choices were guys like Stan the man Musial, Ted the thumper Williams, and jolting Joe DiMaggio. But even that all star group failed far more often than they succeeded. It's a tough assignment to choose not just one winner for the day, but three combined winners. It took many losing experiences, and finally a review of hitting stats to convince me of the futility of that game within a game. Those experiences probably nudged me to become more familiar with statistics.

With just a little imaginative mind stretch that early lesson can be applied to portfolio management decisions. Active fund managers fail to beat their benchmarks consistently just like ball players fail to get more hits than make outs. Statistically, it's much easier to select one such winning manager than a group of them. As the number of active fund managers increases in any given portfolio, the likelihood of that group as a whole outdistancing an Index benchmark decreases. More in numbers does not equate to more in results.

This logic leads to an investment rule: minimize the number of active managers in the construction of a portfolio. If average market returns are not attractive enough for your goals ( they are not if you elect to hire active managers ), then limit the number of active managers to improve your odds of bettering an all Index portfolio.

I'm a very slow learner. That's now my operative rule. What do you think?

Best Regards.

Comments

  • CrashCrash
    edited October 2016
    "Nuke, you got it all wrong. There's no relationship between investing and baseball... Or, wait a minute. Baseball and...???" ---Annie Savoy.
    https://en.wikipedia.org/wiki/Bull_Durham
  • CrashCrash
    Ya, I do like to keep it simple. The KISS Principle. Single lead-managers can act on their instincts. These days, going through school or at professional meetings, small-group trust-building "ice-breakers" are to be expected. Always hated that crap. Always worked better alone, and got better results. ORK. Did I miss my calling?
    My own chosen funds with single Managers include PREMX, DLFNX, (oops---uncle Jeffrey---DLFNX--- added a guy named Sherman.) Also PRDSX and PRIDX. TRGRX. PRSNX. PRWCX. A recent teammate was named to work with Andrew Adams at MSCFX. And MAPOX now has a pair, rather than a single Manager. I'm sticking with them all.
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