For obvious reasons, it brings us much joy to watch Managed Futures Legend John Henry hoist up the World Series Championship trophy earlier this week in Boston. The reason being no Chicago Cub fan in his or her right mind would want to see the arch rival St. Louis Cardinals hoisting the trophy. Oh… and the little part about Henry making his money in the managed futures industry, before closing in 2012. Maybe he needed to close down his managed futures operation to concentrate more on the Red Sox?
Photo Courtesy: Forbes
Which is why we were eager to read all the articles detailing how John Henry had re-dedicated himself to the success of the Red Sox, and put his managed futures quant team and models to use analyzing player performance, and all the rest…… But back in the real world – we found none of that. Instead we read how The Sox went from the worst team in the AL East last year to World Series champs this year – a tremendous turnaround (except, is it really? I mean, they won the thing 6 years ago and have many of the same players – this isn’t like the Cubs going from worst to first).
Anyway, with the obvious tie-in to managed futures because of Henry – and the asset class being one of the worst “teams” this year when compared to stocks at all time highs, this got us to thinking – can Managed Futures do the same thing? Can they go from zero to hero, worst to first, and all those other clichés? They sure can.
First and foremost, as much as we enjoy using baseball analogies to talk shop, unlike baseball and well… all of sports… the previous (monthly, yearly, or even decade long) performance of a program (team) is more often than not a contrarian indicator. It’s hard to go from worst to first in baseball, you need better talent, some luck, and the other teams to fall back some. But it’s much easier to do it in an asset class, where being at the top means your expensive and being at the bottom means you’re cheap – luring in investors to buy the cheap assets and sell the expensive ones. That sort of self fulfilling structure makes it much more common for the worst performing assets/stocks/etc. to become next year’s best.
They don’t have to become better by upgrading their talent, they just have to keep doing what they are doing and when the environment switches – the formerly worst becomes the now best. And perhaps that’s why, unlike baseball and the multi-decade droughts in championships (Red Sox lasted 86 years and Cubs are still in its 105 year of drought), you don’t see 80 to 100 year gaps between asset classes being the annual champs.
But something tells us the the people of Boston won’t remember that the year prior to their 2013 championship they finished last in their division. They will remember 3 World Series championships in 9 years. They will remember the Red Sox asset class being better than most for more than a decade. Now…. about those Cubs… didn’t current Cubs GM Theo Epstein design much of that Boston roster with his moneyball-like approach. Are the Cubs next to go worst to first…