Hittin ‘Em Where They Ain’t Notes from the Diamond #6 of 108 Part 1: Zest in the Pursuit Exploring parallels between baseball and investing David A. Salem Log of all notes in series available here Email: [email protected] All notes optimized for viewing in PDF form Twitter: @dsaleminvestor PDFs available to paid-up subscribers only; subscribe here F E B R U A R Y 1 4 , 2 0 1 9 R E A D T I M E 1 0 M I N U T E S * Baseball statistics are not pure accomplishments of men against other men, which are what we are in the habit of seeing them as. They are accomplishments of men in combination with their circumstances. - Bill James If things come easy, there is no premium on effort There should be joy in the chase, zest in the pursuit. Trivia Question #6 of 108. Of the 877 players on the - Branch Rickey rosters of Major League Baseball (MLB) teams at the start of the 2018 regular season, how many were People ask me what I do in winter when there’s no baseball. I’ll tell you what I do. I stare out the window and wait for born outside the United States? Answer below. spring. - Rogers Hornsby * Excludes footnotes (which even non-lawyers might enjoy). Keeping Busy. To help myself and perhaps other What would’ve become of the PE [private equity] members of the ET pack move through the current industry if, instead of devoting a large fraction of MLB off-season more productively than Rogers Yale’s endowment to PE, [Yale CIO] David Swensen Hornsby moved through the many off-seasons he had deployed all such capital via managers investing endured, 1 I’ve crafted a two-part note about a exclusively in publicly traded stocks of owner- cardinal challenge in both baseball and operated firms? ‘Tis hard to say, but I’ll try … in my investing: hittin’ ‘em where they ain't. Part 1 next note. focuses on pros who’ve met this challenge uncommonly well; Part 2 (slated for publication as Before tackling the foregoing question, I feel spring training shifts into high gear later this month) compelled to do two things. First, I’ll encourage will focus on means that investors might employ to readers who haven’t digested fully Note #2 (on meet this challenge in coming years and beyond. excessive “juicing” by private equity and baseball pros) and the aforementioned Note #5 (on excessive Pet Peeve. The prior note in this series (Note #5) mimicry of “the Yale model”) to do so before reading focused on personal traits enabling certain players to what follows, parts of which may seem naïve absent achieve greatness in investing or baseball, and ended such auguries. Second, I’ll raise and answer a with a question about one such great: question that’s both central to this series and worthy of more attention than it typically attracts in 1 Born in 1896, Hornsby was a player, player-manager, or he’d permitted himself to read or watch movies. He off-field exec in pro baseball from 1915 until shortly refused to do either during his 23 seasons as an active before his death during the 1962-63 offseason. Having player (1915 – 1937), convinced that doing so would harm notched 2,930 fewer MLB hits than Hornsby — generally his eyesight. FWIW, Hornsby didn’t smoke or drink either. regarded as the best right-handed hitter in MLB history — He did gamble, however, compulsively and lucklessly I’m hardly one to critique anything he did or didn’t do. enough (on horse races) to necessitate his working for pay That said, Hornsby might have enjoyed offseasons more if during the entirety of his 25 years as an ex-big leaguer. discourse about greatness in investing or baseball: grading fiat-enabled capital allocators like Fed chair what metrics should be used to distinguish truly Jay Powell as distinct from return-oriented allocators great practitioners from merely good ones? like Swensen or me or perhaps you? Why not? If, as Ben Hunt argues persuasively in You Are Here, To be sure, with computer-based analytics having modern capital markets have morphed into political transformed both the playing and business of utilities, it seems not merely fair but essential that baseball since the current century dawned, pros in we ask whether such utilities’ ongoing that arena devote not merely ample but arguably administration is producing the optimal deployment excessive airtime to quantifiable metrics when of capital — taking due care to define optimal, of grading past or current pros, be they on-field players course. By my lights, optimal in this context means or execs. But there’s scant agreement on optimal the deployment of financial capital that enables the metrics for divining true greatness in baseball, even maximum number of citizens to achieve their full and indeed especially respecting criteria for election potential under whatever boundary conditions the to its Hall of Fame, and frustratingly scant discussion allocators being judged are laboring and neither of optimal metrics for divining competence let alone created themselves nor have the power to change. greatness in finance. The italicized caveats are crucial, as exemplified by the tenures of the greatest and least-great Fed heads in my lifetime: Paul Volcker, Fed chair for eight years starting August 6, 1979; and William Miller, Fed chair for 17 months ending the date Volcker started. Miller didn’t create the stagflation that gripped the US economy in the late 1970s; indeed, given Volcker’s not insignificant role in Richard Nixon’s decision to end the greenback’s convertibility to gold Pray tell, when was the last time you heard Paul in 1971, Volcker arguably deserves no less blame Krugman an “expert” in finance articulate the precise than Miller for the stagflationary conditions both 3 metrics and time horizon underlying whatever men encountered during their tenures atop the Fed. critique of the Fed’s evolving policies they’re serving That said, Miller himself took no effective steps to up on Bloomberg or CNBC? Dunno ‘bout you, but I end such torpor — a scourge whose ultimate purging haven’t encountered such exactitude from a talking by Volcker makes his tenure at the Fed the gold head since the San Diego Padres last won the World standard for greatness in not only central banking Series (WS). That would’ve been ... never, the Padres but arguably also in capital allocation broadly being the longest established MLB team to never win defined. it all: 49 years and counting.2 For me, that standard or test is simply stated: did the Gold Standard. Why demand precision respecting person being graded act boldly enough for long both the metrics being used to gauge results and the enough to boost materially and sustainably the time horizon over which they’re being applied when achievement of human potential? 2 Hope springs eternal in Sandi, however, especially for approximate interval between the Red Sox’s zenith in Padres fans with multi-year time horizons: taking a page annual talent rankings of MLB farm systems earlier this from the team that won the most recent World Series decade and the team’s most recent World Series win (in using a strategy discussed at length below, the Padres 2018). have built what is widely viewed as the top farm system in 3 Readers seeking more info on Volcker’s role in Nixon’s pro baseball as the 2019 season approaches. If the abandonment of the gold standard in 1971 could do worse immediate past serves as reliable prologue to the future than start with the brief history of this decision published — a concededly shaky premise in baseball no less than by an organization that, like this author, thinks Volcker investing, as also discussed below — the Padres will be subsequently did a superb job as Fed chair. The Hoover world champs within a half-decade, that being the Institution’s brief piece on the topic is available here. ©2019 Epsilon Theory All rights reserved. 2 Strikingly Similar. Which past or present players in ultimately earn degrees. So far as I can tell from investing or baseball meet the test for greatness just published accounts of both men’s dealings as well as proffered while also serving as useful case studies for conversations with Swensen himself, their early 20s contemporary readers seeking to elevate their own were essentially the last intervals in their lives when games? either Rickey or Swensen fancied getting along to even remotely the same degree as getting ahead. Many candidates come to mind, some of whose achievements were flagged in prior notes and will be Indeed, as Lee Lowenfish’s fine biography of Rickey discussed further as this series unfolds, e.g., investor makes plain, and as the ever-expanding universe of par excellence Jeremy Grantham and baseballer par writings by and about Swensen makes equally clear, excellence Joe Torre.4 Here and now, however, the both men rose to the top of their chosen professions tidiest answer I can give to the question just posed by practicing doggedly what Rickey’s fellow Hall of while also moving toward an eventual answer (in Famer Willie Keeler preached in his oft-quoted Part 2) to the counterfactual query raised at the response to a reporter’s query about hitting: “I have outset of this note is by comparing the words and already written a treatise [on the subject]”, Keeler deeds of the investment pro mentioned in it to those crowed, “and it reads like this: Keep your eye clear of a legendarily accomplished baseballer whose and hit ‘em where they ain’t.”5 temperament and indeed origins resembled Swensen’s: Branch Rickey.