Iron Capital Insights

  • Iron Capital Insights
  • November 4, 2021
  • Chuck Osborne

Braves Win, Braves Win, Braves Win!!!

The Atlanta Braves (really the Marietta Braves now, as Joe Buck pointed out during the Game Six broadcast) are the World Series Champs! I am glad, but I do have to admit to struggling to stay awake and being somewhat offended by the constant reference to 1995 being some kind of ancient history. I remember beating Cleveland like it was yesterday, so please stop with the “It has been 26 years….”

Atlanta has been my home for 29 years. I moved to Atlanta in 1992 less than a year after the Braves went from worst to first in 1991. It was so exciting watching that young team that went on to the World Series seemingly every year and lost all but once, which was good for the Buffalo Bills because at least they could point to Atlanta and say, “They are bigger losers than we are.”

Somewhere along the way I just stopped watching. The specific reasons might be an interesting discussion, but that will keep for another day. I can’t tell you the last time I saw the Braves play before Games Five and Six of the World Series this year, but to put it in perspective, when did the Astros become an American League team? I say all this not to disparage, but so that one can understand my shock of two teams making it to the World Series without a single competent starting pitcher between them. The Braves used to have five starting pitchers – you know, back in the stone ages of the 1990s, the last time they won a World Series. Tom Glavine pitched eight innings in the final game in 1995. Times have changed.

Moneyball is what changed it. Other than being an okay movie, Moneyball was the story of how so-called analytics made their way into sports, starting with the Oakland A’s of Major League Baseball. Analysts would crunch data to decide the best moves to make; sports would leave the realm of art and enter the world of science. I am not a fan of analytics, which may be surprising to many since I have spent my entire adult life in the field that has forgotten more about analyzing numbers than most others will ever know. My issues are not the same as many old-school sports fans; my issue is that I see so clearly the huge mistakes that these analysts make.

I see them because crunching numbers in order to make decisions is what I do. The investment industry invented analytics. Behind me in my office on a bookshelf sits the bible – not the Bible, although I own a few of those as well, but the bible of analytics, “Security Analysis,” by Benjamin Graham and David Dodd. It is about twice as thick as the real Bible and harder to read. I doubt most of the analytics guys in sports have read it, but they should. The first chapter of this investing classic is basically a long warning label. To greatly oversimplify, it says you will have more success investing if you learn how to analyze your investments, but (big but) never fall in love with your model. Numbers alone can fool you.

When analytics first came to sports it improved outcomes, because so much of what had happened before then had more to do with tradition than with logic and reason. Knowledge is a powerful thing, and the proper analysis of data (investing data, sports data, or climate data) can build knowledge. Knowledge, however, is not the same as wisdom. Wisdom comes from the combination of knowledge and experience. Let me give some examples of where analytics gets it wrong.

Milton Friedman put the warning this way, “We must reject alike facts without theories and theories without facts.” In other words, we should not believe something without it being backed up by data, but if random data cannot be logically explained, we must reject them as well.

Analytics tells baseball executives that the effectiveness of pitchers decreases every time they see a batter during the game. This has led to the idea that you don’t want your starting pitchers to go deep into games where they start seeing batters for the third time. So, the roll of the middle relief pitcher has expanded. This works in the regular season, but in a seven-game series, those middle relief pitchers are pitching in every game and the batters see them three or four times. This is not my insight, but the insight of John Smoltz, who knows a little about pitching in World Series. He was on that 1995 Braves team.

The analytics guys are knowledgeable. They have a lot of data, and that gives them knowledge. Smoltz, on the other hand, has wisdom. He has all the same data and knowledge of the analytics, but his knowledge is combined with actual experience. The Braves won Game Six because their pitcher pitched six shutout innings, and he could have kept going. As a fan, I was really disappointed that he was not given the chance. While it may be true that in the past managers stuck with pitchers too long, the idea that there is some magic limit which analytics can give you is total nonsense.

It is nonsense because the number of pitches a pitcher can effectively pitch is random. We all know this intuitively. Some days we feel better than others. Anyone who has played any sport or even just exercised knows that for a multitude of reasons we wake up one day and everything is easy, then the next everything hurts. Pulling a pitcher after six innings because a spreadsheet tells you to do so is an abuse of mathematical analysis and it makes me cringe.

In reality, what analytics can give is, at best, a range of normal outcomes. Let’s say on a normal day the pitcher can pitch five to seven innings effectively before losing his “stuff,” as they say. That is what we refer to as the standard deviation. At least two thirds of the time the pitcher can go five to seven innings (six being the median and therefore the “magic” number), but one third, or 33.3 percent of the time, he will either not make it five innings or he can go longer. This is where the spreadsheet needs to meet up with real-world experience. A good manager should be able to recognize one of those days, bad or good, and make exceptions, especially in Game Six of the World Series.

In football people abuse math to suggest that a team should never punt. In basketball, numbers have been mutilated to suggest that offensive rebounds don’t matter. If I still had hair, I would be pulling it out!

Arguments between sports fans are fueled by all of this nonsense, and like most of the issues that supposedly divide us today, the truth is in the middle. At Iron Capital we operate under a set of guiding principles, and one of those principles is to strive for wisdom. We define wisdom as the combination of knowledge and experience. Analytics can bring knowledge, but not until one gets out in the real world and actually gains experience can she achieve wisdom. It matters not whether she is analyzing investment opportunities or baseball strategy; to truly achieve, she has to combine the science with the art. Both are insufficient on their own.

That may explain why, after all these years of not watching baseball, the only people I recognized were the managers. Experience matters. Go Braves!

Warm regards,

Chuck Osborne, CFA
Managing Director