“No matter how successful you are, change is always good.” - Billy Beane
Watching the Fall Classic never gets old, particularly when the home team is playing in the World Series. Baseball at its core is a very simple game: hit the ball, run the bases and the team that scores the most runs wins. The catch (pun intended) is that there are multiple, if not infinite, ways to score runs and each player/team has its own unique style. Throughout the game’s history, home run hitters have typically received the loudest cheers at the ballpark, while players who consistently get on base still draw cheers but nothing like the long ball hitters.
The reality of the game is that it is far easier task to simply get on base than to hit a home run. If four singles can score a run just like one home run, and the probability of hitting a single is significantly higher than hitting a home run, then why not just get on base? This concept was put into practice in the early 2000s by Billy Beane, the Oakland A’s general manager at the time. The approach taken was made famous by the book, and later movie, “Moneyball”. Billy was not afraid to think differently about how he could accomplish his goals, and in doing so forever changed the game of baseball and the process of building a winning team.
So how easy is it to score a run? It is actually incredibly difficult but below is an analysis of hypothetical teams based on the top player at each position who did the best job of hitting home runs and getting on base for the 2021 season.
Major League Baseball 2021 Season Leaders
|Hit Probability||Average At Bats per Game||Average Runs per Game|
|On Base %||37.8%||34.5||3.3|
Hitting home runs gets the loudest roars and sells the most jerseys, but getting on base consistently scores the most runs which is, after all, how you win. What is even more impressive is that in this simple example, all hits for the on base percentage leaders were treated as singles, which would require four singles to score a run vs. one home run. In reality, there were numerous multi-base hits from the on base percentage leaders’ group that would have meaningfully extended their lead in average runs per game.
There are a number of comparisons to investment management from this example. The industry routinely references clichés about hitting singles, not swinging for the fences or waiting for the fat pitch. These are all easy to say, but finding an investment manager that can actually back up what they are saying with the discipline required is difficult.
At Overlay Shares, we follow a disciplined, conservative, and repeatable investment process that capitalizes on persistent behavioral biases of market participants. The rigorous application of our unique methodology is how we “get on base” consistently over time and generate an investment edge. Our approach is heavily weighted toward tilting the probabilities of investment success in our favor. As seen in the baseball example, employing a strategy with an inherently higher probability of success creates a distinct advantage that can be a significant contributor to outperformance over longer periods.
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The assertions and statements in this blog post are based on the opinions of the author and Liquid Strategies. The examples cited in this paper are based on hypothetical situations and should only be considered as examples of potential trading strategies. They do not take into consideration the impact that certain economic or market factors have on the decision making process. Past performance is no indication of future results. Inherent in any investment is the potential for loss.