From the Wall Street Jounral comes Russell Adams’ article Is that team good — or just lucky? An excerpt to consider:
Melky Cabrera, a highly touted 21-year-old outfielder for the New York Yankees, started off the season well, batting over .300 through early June. Now he is in a slump, hitting .189 in his last 10 games. For fans and the Yankees, the question is simple: How much of the rookie’s impressive start was dumb luck? A lot of it, according to some baseball number-crunchers. Using new statistical methods, they calculated that the equivalent of one in four of Mr. Cabrera’s early-season hits resulted from chance, not skill. Subtracting out good luck, his early season batting average should have been .231 — nearly 80 points lower than what showed up in the box scores. Even in the numbers-obsessed world of sports, baseball has stood out for its efforts to track all aspects of the game. Now its fanatic record-keepers are on a quest to quantify something seemingly beyond measurement: the ethereal quality of luck. They’re using insights into randomness that are shaking up other fields, from cancer research to weapons testing — and that may even help you pick a good mutual fund.
This excerpt is useful food for thought when analyzing performance data of trend followers…especially when they are doing really well or really bad. The key is to think about how they typically trade.