BASEBALL PROVIDES MODEL FOR tRADING STRATEGY
By Joe Peta
So what's a Stanford MBA who spent years as a Wall Street trader and had a seven-figure compensation guarantee doing noodling around with sports statistics?
Joe Peta was mown down by a New York ambulance at the corner of West Broadway and Park Place. The accident re-arranged his body (12 screws and a huge plate in his leg) and upended his career. Sitting in a wheelchair, weakened, discouraged – and soon fired – he returned to his childhood passion and pastime. He fell in love with baseball again.
His new book, 'Trading Bases', is a pretty good read. It's like 'Moneyball' on steroids, produced by a stock trader-turned-stats geek rather than 'Moneyball's' stats geeks-turned-baseball traders.
"When trades with a positive expected value present themselves on the trading floor, you jump in with both feet," he writes. "Betting on baseball futures (ie, total season wins) was no different."
Speaking of betting – Peta once worked for Lehman Brothers, for goodness' sake – don't forget his great insight: "No matter what the endeavour, if you have an edge, a competitive advantage or a carefully constructed model with a positive expected return, you must avoid wiping yourself out with a single bet.
"Never make a bet on one day that imperils your ability to exist the next day."
Wall Street, take notice. Peta's theory applied to the economy rather than the diamond might have saved the country from the economic disaster of 2008.
He deploys statistics like beanballs, emphasising home- field advantage, line-up changes and pitching, adapting the formula as the season progresses.
The reader learns things like this: "A visiting team down by two runs during the top of the eighth inning with runners on first and second and nobody out has a 31pc chance of winning the game." Talk about news you can use.
In a recent interview, Peta said that baseball is much easier to statistically model than either basketball or American football.
"Baseball is more modellable than anything else. It's really just a series of one-on-one match-ups. It can be modelled fairly effectively," he said. "You have to put so many caveats in football because there is so much interdependence."
Peta also takes a bit more of an in-depth look at Wall Street, comparing it to baseball. He examines Lehman's collapse, risk-management failures and asks why traders aren't as closely evaluated as pitchers in baseball are.
If you thought this is all about sports, his book has just been named one of the top 10 business tomes by Amazon in the US. Step up and make up your mind.
Available with free P&P on www.kennys.ie or by calling 091-709350.