Finding the Next Tom Brady for your Portfolio

We can’t tell you how excited we are for the kickoff of the NFL season tonight! For number crunchers like ourselves, it’s not just the diving catches, bone crushing hits, the beer, or the love the game that entices us… it’s the statistics… it’s dreaming of picking a diamond in the rough in our fantasy league… and of course the trash talking.

Which leads us to this little gem of a picture floating around the internet of late…

Tom Brady 2000 NFL Draft
Photo Courtesy: Boston.com

Yes, that’s none other than 8x Pro-bowler, 2x MVP, 3x SuperBowl winner, and supermodel dating (marrying?) Tom Brady of the New England Patriots. Who in their right mind would have thought Brady could have achieved even half of those accomplishments given his less than stellar physical appearance coming out of college. Even the Patriots weren’t quite that sure, waiting til the 6th round to draft Brady.

Now, we’re Bears fans around here, but it’s easy enough to draw parallels with investing from this not so glamorous picture of Brady at the 2000 NFL Combine (where they scout talent like diners at Chicago’s famous Gibson’s steakhouse pore over the cuts of meat before ordering). Ugly charts (investing’s combine picture corollary) are everywhere…. Some classic examples would include say, this stock losing -70% over 3 years.

Apple 1980sChart Courtesy: Google
(Disclaimer: Past performance is not necessarily indicative to future results)

That would be wunderstock Apple in the early 80’s, about 14,000% ago.

Or this stock falling about -65% and looking like anything but a powerhouse.

McDonalds 2000'sChart Courtesy: Google
(Disclaimer: Past performance is not necessarily indicative to future results)

That just happens to be a little company called McDonald’s a mere 10+ years ($75 billion in market cap) ago. No, we haven’t lost our minds and switched to recommending stocks (Apple would be a sell, McDonald’s a buy if we were in that business) instead of managed futures.

The point is that classic bit of lifelong advice – you can’t judge a book by its cover. Looking at NFL prospects at the combine is like looking at investments early in their history or over just a few years. All you are seeing is a quick snapshot that may or may not look anything like what you’re going to get over the next three years, or five or ten years for that matter. While it only seems natural to want to pick the biggest, strongest, fastest players who come from the most successful programs in the football world; and the smartest, most polished, best performing managers in the investment world – there is a very long list of former All Stars who are now out of the game both in the football and investing world.

The better method of picking talent, in our books, is to look past the most visible signs such as last year’s performance and the like (40yd dash and bench press at the combine), and instead try and judge talent where it matters more – say in risk adjusted performance, or performance over a minimum acceptable return adjusted for risk, or best worst periods, and so on. In football terms, can you run a pattern fast and catch the ball, not just run fast…

When investing based on process, not results – you can end up with a Tom Brady. When you’re just chasing results, you’re more likely to end up with Jamarcus Russel or Ryan Leaf, and left wondering where you went wrong with the sure fire pick of the experts (CNBC talking heads).  When doing contrarian investing, buying drawdowns like the one most managed futures programs are in right now – you can end up with a Tom Brady (of course, you can also end up with a Ricky Stanzi).

 










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Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex, and is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

*The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on Attain’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by Attain, and averaging of various indices designed to track said asset classes.

It should be noted that past market performance is not indicative of future market movement.No market data or other information is warranted by Attain Capital Management as to completeness or accuracy, express or implied, and is subject to change without notice.

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Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.