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Statistics in Football Can Make You See the Innovative Trend Following Light

Consider a story excerpt about “numbers” that might just help you to make more money:

A high school coach in Arkansas has developed a new football strategy: His team never punts. And he always employs the on-side kick. Coach Kevin Kelley developed these tactics from a study of football statistics; though the team often gives up the ball on downs, the increased number of possessions pays off in the long run. The coach has an .833 record since adopting this strategy, and his team has won the state championship three times. This season the team is 10-0.

Keeping the offense on the field on fourth down allows for more creative play-calling. Third-and-long does not have to be a passing down. The Little Rock school can run the ball, throw a screen pass or use any number of formations. Defenses do not know whether to use a nickel or dime defense. And Pulaski’s offense has less pressure on third down.

“We don’t really worry too much about it,” quarterback Spencer Keith said. “We just get as many yards as we can. We don’t have to go for the first down.”

If Pulaski converts on fourth down, it creates a momentum change similar to a turnover. Other high school coaches have told Kelley they would rather see his team punt. The Bruins even avoid punting when the defense has stopped them inside their own 10-yard line.

“You can just tell people are in the stands thinking, ‘You’re an idiot,’” Kelley said. Kelley supports this rationale with numbers analysis.

If Pulaski has a fourth-and-8 at its own 5-yard line, Kelley said his explosive offense likely will convert a first down at least 50 percent of the time. If it fails to convert, statistical data from the college level shows that an opponent acquiring the ball inside the 10-yard line scores a touchdown 90 percent of the time. If Pulaski punts away (i.e., a 40-yard punt with a 10-yard return) the other team will start with the ball on the 38-yard line and score a touchdown 77 percent of the time. The difference is only 13 percent.

An innovative and statistics-minded coach, Kelley had tinkered with eschewing the punting game since winning his first state championship in 2003. He became further emboldened after reading several studies, including “Do Firms Maximize? Evidence from Pro Football,” by University of California-Berkeley economics professor David Romer. Kelley also examined ZEUS, a computer program developed by Chuck Bower, who has a doctorate in astrophysics, and Frank Frigo, a game theory expert, to model and predict football outcomes.

THAT is exactly how trend following approaches making money in the markets. Question the typical ways of investing and put the odds on your side.

The way to a nice life.

“The guiding principle of our work is figuring out a way to deal with uncertainty.”

Excerpt:

Q: What’s the guiding principle of your work now?

A: The guiding principle of our work is figuring out a way to deal with uncertainty. That’s what we deal with every day—an uncertain future. What’s going to happen on the next pitch is uncertain. We can’t figure out exactly what’s going to happen, but if we can get our arms around a range of possibilities, that gives us a much better chance to at least make better decisions. We’re still going to be wrong a lot, but hopefully we’re wrong less often now than we were 10 years ago. But we’re never going to be in a situation where our analysis tells us what’s going to happen. These are human beings interacting with one another in a highly stressful situation. So we’re never going to be perfectly predictive. But that’s what makes baseball interesting, makes it emotional.

Trend following 101…too.

Source: Go.

Ep. 124: Variability is the Norm with Michael Covel on Trend Following Radio

Variability is the Norm with Michael Covel on Trend Following Radio
Variability is the Norm with Michael Covel on Trend Following Radio

Today on the podcast Michael Covel talks about the idea of resilience and the ability to operate with variability as the norm. There’s going to be volatility and you can’t make it go away; to operate with variability as the norm is to be a trend following trader. If you try and make it go away, you might end up falling with the next 50% drop in the S&P killing your account. Because it will happen. There will be another major equity drop. There will be the same panics that we saw in 2000 and 2002, the fall of 2008, and October of 1987. Most people will lose 50% of their net worth because they don’t have a strategy that deals with variability. The 100-year flood doesn’t happen every 100 years; it happens every 2-3 years. Covel moves into a clip with David Harding of Winton Capital Management and quotes author Nassim Taleb about surviving when the black swan flies in. It’s the difference between taking a punch when you’re prepared for it or being caught off-guard with a punch to the gut when you least expect it. Those that simply buy and hold stocks and put their trust into the government and the Federal Reserve? They’re the ones getting a punch to the gut that they don’t see coming. Next, Covel moves into another clip from Michael Lewis (author of “Liar’s Poker” and “Moneyball”) about what was behind “Moneyball” and how rather than being a story about baseball it is about misinterpreting value and misappraisal. Building off what David Harding said, Lewis also talks about the idea of measuring, counting, and using statistics to make good judgments. What David Harding and Michael Lewis are getting at is not generally accepted. Most aren’t paying attention. Covel shares a quote from a Stanford psychologist: “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point.” In many ways, that’s what Covel feels like when he’s trying to get the ideas of trend following across; that’s what he’s up against. He’s also up against the buy & hold mutual fund industry, who love fees. They have no desire to tell their clients about trend following strategies, how to look at the world from a statistical perspective, or how to prepare yourself for the next black swan. Covel is fully aware of the controversial nature of his views and the idea of trend following in general, and he closes by reading a polemic and playing a clip from author Christopher Hitchens, as well as another king of controversy: Glenn Danzig.

Listen to this episode:

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