Thursday, October 28, 2004

Playing Moneyball?

Usually when making investments, it is implicit that investors believe they have some degree of knowledge about the future. So Wall Street has more fortune tellers than any other industry. I feel I've had an advantage over the years because I am clear about a couple of things: 1) it is part of the nature of life itself (and markets are simply manifestations of people's expectations) to trend, and 2) I will never have a complete or full understanding of anything. Therefore, all investment decisions should be based on what can be measured rather than what might be predicted or felt. -- John Henry, famous commodities trader and Boston Red Sox owner

One of the difficulties in trading system development is idea generation. I have several notebooks around the house, the car, and the office so when an idea for a new system hits...I'm ready. And then you have the problem that when the ideas start can't write them down fast enough. This can go on for weeks. And then you crash. You hit a dead end.

I guess, it's a lot like writer's block. You're completely out of ideas and you don't think you'll ever have another good idea again. But, then get recharged from the strangest things.

After the movie last night I stopped by the local bookstore and picked up Moneyball by Michael Lewis. I read just a few chapters and I can already tell it's a classic. A book that every system trader should have in their investment library.

The story of Billy Beane and the Oakland A's is amazing. And the field of Sabermetrics is pretty cool. The story is a great idea generator for system traders. It makes you feel great about what you do. And gets you excited about finding more systems out there in the market.

On a special note: Bill James is the founder of Sabermetrics. For years he received little or no respect in the field of baseball. With the record of Billy Beane's Oakland A's and the Moneyball book...that respect slowly came. In 2003, Bill James was hired by the great commodity trend follower and Boston Red Sox owner, John Henry. The rest as they say is History.

Congrats Red Sox on your historical World Series win!!!

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