Finding Winners

Is imitation the sincerest form of flattery?

Imitation jewelry. Public Domain. Source: Pxhere

In football many teams use the “West Coast Offense.” It’s a strategy devised by Bill Walsh in the 1990s while he was offensive coordinator for the Cincinnati Bengals and later the San Francisco 49ers. It makes use of frequent short, quick passing plays for short yardage to stretch out the defense. These have the effect of opening up the field for long bombs. This tactic has enjoyed some great success. Now there are over 30 teams running the West Coast Offense, from LA to Green Bay to New England.

A similar thing happened in baseball in the’80s, with “Whitey-ball”. Whitey Herzog managed the St. Louis Cardinals and emphasized speed along the base-paths, solid pitching, excellent defense, and line drive base hits. The approach was well-suited to the expansive, fast, AstroTurf surfaces of Busch Stadium and other new fields of that time. Pretty soon, lots of teams were emphasizing speed and defense. Stealing bases became a celebrated skill.

Rickey Henderson stealing second base. Source: Wikimedia

Of course, sports strategies like these all have limited shelf-lives. Football’s defensive coordinators now focus on fast cornerbacks to break the momentum of a quick-pass offense. Major League Baseball’s infield coaches have recruited catchers with cannon-like arms to throw out base runners who get too aggressive. What works, works, until it doesn’t.

Sports and investing are similar in that they are both adaptive systems. Strategies work until everyone follows them. Then they don’t confer any competitive advantage. When everyone knows what you’re doing, it’s not a surprise any more. This can be the case when people pick stocks. An approach like value investing or dividend-growth or low volatility appears to work for a while, but then lots of new investors adopt the strategy and it gets crowded. A crowded investment strategy is like a crowded elevator. if too many people get in, it can’t go up . All the “value” in value investing gets consumed.

So, enjoy this year’s World Series and football season. Chances are, what works this year will need to change soon. Nothing fails like success!

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By |2018-10-09T16:37:10-04:00October 9th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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