{"id":590,"date":"2016-05-27T09:03:22","date_gmt":"2016-05-27T16:03:22","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=590"},"modified":"2016-05-27T09:03:22","modified_gmt":"2016-05-27T16:03:22","slug":"what-do-baseball-the-olympic-100-metres-and-managing-money-have-in-common","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/what-do-baseball-the-olympic-100-metres-and-managing-money-have-in-common\/","title":{"rendered":"What do baseball, the Olympic 100 metres and managing money have in common?"},"content":{"rendered":"

In 1896 Thomas Burke from the USA won the 100 metre Olympic final in a time of 12.0 seconds beating the bronze medal winner by 0.6 seconds. \u00a0In\u00a01936 in Berlin Jesse Owens slayed the Olympic record and won gold with a time of 10.3 seconds but only managed to beat the Dutch bronze medalist by 0.2 seconds – the spread between first and last<\/em> in the final was 0.6 <\/span>seconds. \u00a0Fast forward to the most recent summer Olympics when we all watched in awe as Usain Bolt won his second straight 100 metre gold with a time of 9.63.<\/span> \u00a0It wasn’t easy though – bronze medalist Justin Gatlin was hot on his heels 0.16 seconds behind at 9.79<\/span>. \u00a0There are two interesting dynamics at play here that present a bit of a paradox. \u00a0On one side, the winning\u00a0time has come down substantially over time as training techniques have evolved, nutrition is better understood, equipment and track conditions have improved (Jesse Owens ran on a track made from the ashes of burnt wood), and as the sport has broadened to more people around the world (in 1896 8 nations competed vs 92 in 2012). \u00a0On the other side, the spread between winning and losing athletes has decreased just as dramatically. Everyone’s getting better but everyone’s getting more and more average.<\/p>\n

In baseball, it’s hard to argue that players aren’t getting better. <\/span>\u00a0Just looking at photos of some of the old time players leaves you with no doubt!<\/span><\/span>\u00a0 And again, better training, better nutrition, better equipment and a larger pool of athletes\u00a0have all lead to far<\/span> superior ball players. \u00a0And yet no MLB player has batted better than .400 for a season since Ted Williams did it in 1941 and the league\u00a0average<\/a>\u00a0batting average seems stuck in a tight range of about .250 to .270. \u00a0If batters are getting better and better why can’t you see it in the numbers? \u00a0At least with the 100 metre race the record came down significantly over time. \u00a0Perhaps that’s because\u00a0in the 100 metres there isn’t an adversary trying their best to\u00a0trip you, block your path, or use\u00a0every trick up their sleeve to stop you from crossing the finish line. \u00a0In baseball they’re called\u00a0pitchers and it’s hard to argue looking at today’s aces that they haven’t improved at least as much as hitters over the years.<\/p>\n

In both sports, you have higher skills today than in the past yet it’s getting more difficult to stand out. \u00a0When skills are so refined and so common\u00a0and competition so fierce, the factor that can most often distinguish between winners and losers becomes….luck.<\/p>\n

This week we attended a Morningstar panel discussion where the topic was, “Is Alpha Shrinking” or in plain language, “Is it getting harder for fund managers to outperform the market?” \u00a0The panelists were very experienced, very smart and didn’t come to the event with a particular axe to grind – how\u00a0refreshing! \u00a0They all agreed\u00a0that it’s becoming harder and harder to beat the market, partly because of the proliferation of highly skilled investment managers. \u00a0According to the MAR database there were 95 hedge funds in 1990. \u00a0There\u00a0are\u00a0more than 10,000 today. \u00a0And that’s just hedge funds – it’s hard to believe it’s getting any easier to compete. \u00a0Even more so because now everyone has a great education from a top business school where they study the same thing, everyone has the same investment tools and computing speed and the internet means that known information is incorporated into market prices almost instantaneously. \u00a0Trying to “out-skill” the market is perhaps even more difficult than winning the 100 metre dash or batting .400. \u00a0Investors will beat the market, it’s just most likely due to luck.<\/span><\/p>\n

The application of this “paradox of skill<\/a>” to the investment world is best explored in\u00a0strategist and author Michael Mauboussin’s 2012 book “The Success Equation”. \u00a0The baseball analogy above is from the book. \u00a0It’s hard to look at the evidence and believe that paying someone high fees to try to beat the market makes a lot of sense. \u00a0Active investment management is a zero sum game – the winners win at the expense of the losers and active managers underperform the market in total by the amount of their fees – so what can you do? \u00a0Charles Ellis wrote The Losers Game in 1975 but the takeaway is even truer today than it was then.<\/p>\n

The winning strategy in\u00a0a losers game is not to play.<\/p>\n","protected":false},"excerpt":{"rendered":"

In 1896 Thomas Burke from the USA won the 100 metre Olympic final in a time of 12.0 seconds beating the bronze medal winner by 0.6 seconds. \u00a0In\u00a01936 in Berlin Jesse Owens slayed the Olympic record and won gold with a time of 10.3 seconds but only managed to beat the Dutch bronze medalist by […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10,7,3,12],"tags":[],"class_list":["post-590","post","type-post","status-publish","format-standard","hentry","category-evidence-based-approach","category-graham-bodel-posts","category-investment-books","category-passive-vs-active-investing"],"_links":{"self":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/590","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/comments?post=590"}],"version-history":[{"count":4,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/590\/revisions"}],"predecessor-version":[{"id":594,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/590\/revisions\/594"}],"wp:attachment":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/media?parent=590"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/categories?post=590"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/tags?post=590"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}