John Henry and Red Sox: From Zero to Hero

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?

John Henry
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…

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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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