Sunday, February 22, 2015


As is my habit, I began my Sunday by reading the sports page of the Sunday NY Times.  It's the only sports page I get all week, and I particularly like the lead story each week, which is typically not about a big name team or player but rather about the normal human struggles of people who love whatever game they play and/or overcome something.  This week it featured a New Zealand basketball team that plays in the Australian league.

So I read that, and was as inspired as I usually am by the tale of spunk, perseverance, and generally good human nature.  Then I started reading stories about the NBA. The interesting thing was that I don't really understand any of the stats they were quoting.  I mean, I can kind of guess, but I don't know how they are calculated, really, don't understand the inputs to them, all I know is that there were no mentions of your typical stats:  points, rebounds, assists, steals per game, shooting percentages.  None of that.  Which just goes to show how thoroughgoing has been the influence of the new metrics ushered in by the reign of Sir Billy Beane at the Oakland As, as chronicled by Lord Michael Lewis in the canonical Moneyball.

All of this is ironic, given the extent to which I used to memorize sports stats when I was younger, the extent to which I clung to an ability to remember and regurgitate numbers as a demonstration of my self-worth, my primary weapon in the games of dominance we played as young boys.  I wasn't great at sports, I didn't attract the ladies, but I could memorize and spew out some stats, that I could.

On the other hand, I did yesterday finish reading Peter Bernstein's 1992 Capital Ideas: The Improbable Origins of Modern Wall Street, which chronicles the development of the science of thinking about investing and markets, from the formation of the first indices through the development of portfolio insurance, and its (perhaps exaggerated) contribution to the 22% crash on October 19, 1987 which remains, even after the financial crisis of 2008-9, still the greatest single day event of most of our lifetimes.

This is the third of Bernstein's books that I've read, having started with his 1996 Against the Gods. still one of the better books I've ever read.  Capital Ideas is a good book, with the primary fault that it doesn't actually lay out any of the formulas whose evolution it charts (Williams's Dividend Discount Model, the Sharpe Ratio, the Treynor Ratio, the Capital Asset Pricing Model, the Black-Scholes Equation).  I suppose it presupposes that anyone geeky enough to read the book would already be familiar with them, as indeed I am, due to the CFP curriculum.  And having the equations in there would surely be boring.  But he could have at least taken the time to do a one-page explication so that readers wouldn't have to refer back to external materials and/or their own faulty memories to contextualize things properly.  I know I didn't bother.

But I still love the guy.  And I suppose I still kinda live on numbers, just a different sort of them.

Hey, here's a tie back. Michael Mauboussin of Credit Suisse Asset Management said at a conference not long ago that batting .367 today is the equivalent of batting .400 back in Ted Williams's day, due to better pitching, fielding, etc.  I.e. batting .367 is a three-standard deviation event, something like that.  And that's how it is in investing too, was his point.  Think about it.

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