Why the Yankees Sucked in August
September 15, 2022·2 comments·In Brief
A 15-game lead evaporates and the narrative shifts instantly: the manager's lost control, the hitters have choked, something fundamental has broken. But what if nothing broke at all? What if the decline is exactly what we should expect from any team with a consistent win rate, and we only notice it because humans need stories to explain randomness.
- A good team loses seven games in a row sometimes. Not because something went wrong, but because that's what the math guarantees. A team with a 60% win rate will experience stretches that feel catastrophic but are statistically inevitable.
- The same logic applies everywhere we judge performance. A trader with a strategy that makes $100,000 a year on average might make $50,000 one year and $150,000 the next, using identical methods in identical market conditions. Nothing changed except luck.
- We confuse the difficulty of telling luck from skill with proof that luck doesn't matter. Managers fire coaches. Investors fire fund managers. Traders second-guess themselves. All because they can't distinguish between a process breaking down and that same process hitting its natural variance range.
- The real red flags look different than we think. Being wrong on individual trades is fine. Losing money while reading the market well is not. Having a clear plan matters more than the daily result.
- The question becomes: how confident are you that your process is sound enough to survive what the numbers say will happen to it? Because it will happen. Variance is not a temporary glitch. It's structural.
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This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
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Comments
Just bought your book yesterday and, boom, this note hits my feed today. Can’t wait to dig in. Great note, thanks!
You’re gonna love Brent’s book! (and the foreward is pretty good, too)
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