Pitching Records and Investing

On Saturday, Detroit’s Max Scherzer pitched another gem and he increased his won-loss record this season to a remarkable 19-1. Scherzer just pulled ahead of Pittsburgh’s Roy Face’s record for single season winning percentage of 18-1 set in 1959. Scherzer has another seven or eight starts this year, and to break Face’s record, he can’t afford to have another loss.

Scherzer has pitched incredibly well this year. He leads or is near first in just about every pitching category. What I find interesting, though, is Face’s 18-1 mark from 1959.

More than any other record I can think of, Face’s incredible won-loss record seems the most due to luck. We often hear from academics that the record of any great money manager is simply due to luck. If you flip enough coins, surely you’ll see a fantastic run of consecutive heads. It’s just probability.

With investing, I usually think that’s a bogus argument, but in Face’s case, it appears to be correct. Let me clear: Roy Face pitched very well in 1959, just not 18-1 well. Looking closely at his 1959 season, the run of luck he had seems extraordinary.

For one, Face wasn’t a starter. He was one of the first regular closers in baseball. Also, anyone’s won-loss record isn’t solely due to their performance of the pitcher. His teammates have a lot to do with it. Face had a remarkable ability that year to come on in relief when the game was tied, and thanks to his fellow Pirates, he’d get credited for the win. Or blow the save, then get the win. After all, shortening a baseball game to one or two innings greatly raises the importance of luck to your outcome.

That year, the Pirates went 78-76 but they were an amazing 19-2 in extra-inning games, plus 36-19 in one-run games.

What does this mean for investing? Realize that looks can be deceiving. Almost anything can happen with a small enough sample size. Concentrate on numbers that are subject to lower volatility. That’s why I like stocks with long histories of raising their earnings and dividends. That’s not luck, it’s earned.

One-year performance marks for a stock or mutual fund are like won-loss records for pitchers — they really don’t tell you much. In fact, in many cases those are the worst investments to have due to mean reversion.

Still, I’m rooting for Scherzer to go the rest of the season without a loss.

Posted by on August 26th, 2013 at 1:08 pm

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