December 14, 2017
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2017 Was Quite The Year

Jason LaBarge
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December 5, 2017

I love watching baseball. I always have. The World Series is something that I particularly enjoy watching every year. This year, we were lucky enough to have a great World Series with the Dodgers versus the Astros. What is interesting, however, is that this was much more than simply the National League versus the American League; this was philosophy versus philosophy. We had the really old school against the new school.

The Astros represent the old school. Their manager, A.J. Hinch, managed the game based on what his eyes were telling him. The Dodger manager, Dave Roberts, managed the game using something called sabermetrics. “Moneyball,” a 2011 film starring Brad Pitt, made sabermetrics a household term a few years ago. The movie was based upon the book by Michael Lewis, who outlined how the Oakland Athletics revolutionized the game by using statistics more than any other club had up to that point.

Since then, we have seen every team in baseball employ especially smart people within their analytics departments to leverage the insights that sabermetrics can provide. Yet there is still an element to the game that requires gut instinct and visual perception. Managers like Buck Showalter of the Baltimore Orioles are known for their managerial skills in this regard, making decisions based not on what the statistics say but on what their eyes are showing them.

This World Series showed both ways to manage a game. For example, Dodgers pitcher Rich Hill was pulled in the fourth inning of both of his starts, not because the Astros were scoring runs on him, but because statistics say that the opponents’ batting average skyrockets the third time around the batting order against him. Dave Roberts pulled him before the Astros got the chance to see him for the third time. By doing this, Dave Roberts was making decisions not necessarily based upon what was happening in front of him, but he was making decisions based on what statistics were telling him.

If we flip the coin over and look at A.J. Hinch of the Astros, we saw him go to his closer in only one of his team’s four wins. The “closer” is the player who pitches the ninth inning to get the last three outs of the game. Essentially, he is “closing” the game. Usually, these pitchers throw really hard and their pitches are difficult to hit. A.J. Hinch did not have a ton of trust in his closer yet, but instead of going with the statistics, he stayed with the hot hand. He finished games using traditional starting pitchers and had them go for more than one inning. Charlie Morton notably finished game seven, going four innings, which far exceeded the workload of one inning that closers are known for.

Why I am talking about baseball in an article about investments? I am using this as an example to talk about the market in 2017 and where it could be heading in 2018. All of the sabermetrics used to measure market performance are all excellent. The S&P was up over 17 percent in 2017. The Dow is up over 19 percent. It was big news when the Dow hit 22,000. It is now over 23,000 and growing.

So, to what do we owe this tremendous growth? While opinions vary, the real reason for this kind of growth is the result of several factors. The political landscape changed with one of the biggest upsets in presidential election history, and some people are going to attribute the market’s growth solely to that, but it’s not that simple nor totally accurate. The charts indicate that the market was on the upswing even before the election. I feel that one of the contributing factors to this year’s growth is deregulation. President Trump has been deregulating several areas of the economy, and while I won’t get into the details of that regulation, I will say that, historically, anytime you have a period of deregulation, the market responds well afterward. The 1920s might be the best example of this. However, unfortunately for the Roaring Twenties, they were followed by the Dirty Thirties.

While I am not saying that something like the Great Depression is imminent, I am saying that we need to be careful. Depending upon your stage in life, prudence needs to take precedence over greed. Most of us have probably had a great year in terms of our investments. If you have had satisfactory gains in your IRA or your investments, it might be a good idea to take a step back and get more conservative. To go back to my analogy about this year’s World Series, it was the Astros who won. All the sabermetrics in the world did not help the Dodgers succeed in beating the Astros. Perhaps it was destiny with all the problems that happened in Houston this year with flooding, but making decisions based on what your eyes tell you can be valuable. We want to use metrics and statistics to make the best possible decisions in life, but they aren’t always the most important factor. Going with your eyes is just as critical.


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