Tuesday, 6 April 2021

Worse Than Marxism?

This month's The Atlantic magazine has a very interesting article about passive investing with the eye-catching title:
Could Index Funds Be ‘Worse Than Marxism’?

Economists and policy makers are worried that the Vanguard model of passive investment is hurting markets.
It's written by Annie Lowrey and well worth a read although I disagree with the basic premise and conclusion as well as some of the content, but we can't just read articles we completely agree with or we'd never learn anything. 

Readers of this blog will be well aware of my thoughts about active versus passive investing and have hopefully acted on them rather than act like failsons and ignored me! And Tesla gets a mention too. 

The stock market has had quite a year. Plenty of cash is sloshing around, the pandemic recession notwithstanding, thanks to loose monetary policy, rampant inequality, crypto-speculation, and helicopter drops of cash. Plenty of bored people are reading market rumors on the internet, pumping and dumping penny stocks, riding GameStop to the moon, and bidding up the price of esoteric currencies and digital artworks. The markets are swooning and hitting new highs as kitchen-table investing—laptop-on-the-couch investing, really—is having a heyday not seen since the late 1990s.

Yet economists, policy makers, and investors are worried that American markets have become inert—the product of a decades-long trend, not a months-long one. For millions of Americans, getting into the market no longer means picking stocks or hiring a portfolio manager to pick them for you. It means pushing money into an index fund, as offered by financial giants such as Vanguard, BlackRock, and State Street, otherwise known as the Big Three.

With index funds, nobody’s behind the scenes, dumping bad investments and selecting good ones. Nobody’s making a bet on shorting Tesla or going long on Apple. Nobody’s hedging Europe and plowing money into Vietnam. Nobody is doing much of anything at all. These funds are “passively managed,” in investor-speak. They generally buy and sell stocks when those stocks enter or exit indices, such as the S&P 500, and size their holdings according to metrics such as market value. Index funds mirror the market, in other words, rather than trying to pick winners and losers within it.

Thanks to their ultralow fees and stellar long-term performance, these investment vehicles have soaked up more and more money since being developed by Vanguard’s Jack Bogle in the 1970s. At first, Wall Street was skeptical that investors would accept making what the market made rather than betting on a market-beating return. But as of 2016, investors worldwide were pulling more than $300 billion a year out of actively managed funds and pushing more than $500 billion a year into index funds. Some $11 trillion is now invested in index funds, up from $2 trillion a decade ago. And as of 2019, more money is invested in passive funds than in active funds in the United States.

Indexing has gone big, very big. For nine in 10 companies on the S&P 500, their largest single shareholder is one of the Big Three. For many, the big indexers control 20 percent or more of their shares. Index funds now control 20 to 30 percent of the American equities market, if not more.

Indexing has also gone small, very small. Although many financial institutions offer index funds to their clients, the Big Three control 80 or 90 percent of the market. The Harvard Law professor John Coates has argued that in the near future, just 12 management professionals—meaning a dozen people, not a dozen management committees or firms, mind you—will likely have “practical power over the majority of U.S. public companies.”

This financial revolution has been unquestionably good for the people lucky enough to have money to invest: They’ve gotten better returns for lower fees, as index funds shunt billions of dollars away from financial middlemen and toward regular families. Yet it has also moved the country toward a peculiar kind of financial oligarchy, one that might not be good for the economy as a whole.

The problem in American finance right now is not that the public markets are overrun with failsons picking up stock tips on Reddit, investors gambling on art tokens, and rich people flooding cash into Special Purpose Acquisition Companies, or SPACs. The problem is that the public markets have been cornered by a group of investment managers small enough to fit at a lunch counter, dedicated to quiescence and inertia.

Before index funds, if you wanted to get into the stock market, you had a few choices. You could pick stocks yourself, using a broker to buy and sell them. (Nowadays, you can easily buy and sell on your own.) Or you could buy into a mutual fund—a collection of investments selected by a vetted manager, promising solid returns in exchange for an annual fee.

Then Bogle, the head of a mutual-fund company, turned on the industry. He argued that mutual-fund fees were exorbitant, that mutual funds generally failed to beat the market, and that fund employees had an obvious conflict of interest: Was their priority to maximize returns for the people who bought into the mutual fund, or to make money for the company? He set up a company called Vanguard offering a new kind of mutual fund, one that would buy and hold every stock or bond on a major index and that would devote itself to driving fees as low as possible. Other companies, including Fidelity, State Street, and BlackRock, soon mimicked this strategy, later adding exchange-traded options, or ETFs.

The strategy sounds implausible. But it works. Passively managed investment options do not just outperform actively managed ones in terms of both better returns and lower fees. They eat their lunch.

Let’s imagine that a decade ago you invested $100 in an index fund charging a 0.04 percent fee and $100 in a traditional mutual fund charging a 1.5 percent fee. Let’s also imagine that the index fund tracked the S&P 500, and that the mutual fund ended up returning what the S&P 500 returned. Your passively invested $100 would have turned into $356.66 in 10 years. Your traditionally invested $100 would have turned into $313.37.

Actively managed investment options could make up for their higher fees with higher returns. And some do, some of the time. Yet scores of industry and academic studies stretching over decades show that trying to beat the market tends to result in lower returns than just buying the market. Only a quarter of actively managed mutual funds exceeded the returns of their passively managed cousins in the decade leading up to 2019, according to research by Morningstar. That joke about meditation applies to money management too: Don’t just do something; sit there.

Compelled by the math, millions of investors have decided to do less to make more. Competition among the firms offering index funds has driven fees to scratch—some funds charge no fees at all—versus 1.5 percent or more, sometimes much more, for actively managed options. Cash has poured in. Now passive is bigger than active.

While that shift has redounded to the benefit of the Vanguards of the world, it has also redounded to the benefit of retail investors. Index funds mean less money for mutual-fund managers and more money for Mom and Dad: According to Morningstar, investors saved $6 billion in fees by switching to passive management in 2019 alone. “This is on-net positive for society,” Jonathan Brogaard, a finance professor at the University of Utah’s David Eccles School of Business, told me. “You are getting the same exposure to the markets for a tenth of a cost. It’s a no-brainer.”

What might be good for retail investors might not be good for the financial markets, public companies, or the American economy writ large, and the passive revolution’s scope has raised all sorts of hand-wringing and red-flagging. Analysts at Bernstein have called passive investing “worse than Marxism.” The investor Michael Burry, of The Big Short fame, has called it a “bubble,” and a co-head of Goldman Sachs’s investment-management division has warned about froth too. Shortly before his death in 2019, Bogle himself warned that index funds’ dominance might not “serve the national interest.”

One primary concern comes from the analysts at Bernstein: “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active, market-led capital management.” The point of their research note, if rendered a touch inscrutable with references to Hayek and the Gossnab, is about market signals and capital allocation.

Active managers direct investment dollars to companies on the basis of those companies’ research-and-development prospects, human capital, regulatory outlook, and so on. They take new information and price it into a company’s stock when buying and selling shares. If Company A’s stock price tanks when it announces a major scandal, that’s because active investors are selling. If Company B’s shares soar when it announces it’s entering a new market, that’s because active investors are buying.

Passive investors, by contrast, ignore annual reports and market rumors. They do nothing with trading-floor gossip. They make no attempt to research what to invest in and what to skip. Whether holding international or domestic assets, holding stocks or bonds, or using a mutual-fund structure or an ETF structure, they just mirror the market. Big U.S.-stock index funds buy big U.S. stocks just because they’re big U.S. stocks.

That commitment to inertia worries the Bernstein analysts, who point out that in a world with exclusively passive investors, capital will get allocated only to the big companies and not necessarily to good, promising, or efficient companies. A gravitational, big-getting-bigger effect would dominate stock-price movements. At least in a Soviet-type centrally planned economy, apparatchiks would be making some attempt to allocate resources efficiently.

The world the Bernstein analysts fear has not arrived, at least not yet: Passive management is merely a giant phenomenon, not an all-encompassing one. Hundreds of actively managed mutual funds are still out there, as are legions of day traders, hedge funds, and private offices buying and selling and buying and selling. Stock prices still move around, sometimes dramatically, on the basis of new data and new ideas.

Still, passive investing may well be degrading the informational content of the markets, messing up price signals and making business decisions harder as a result. Brogaard and two co-authors, Matthew Ringgenberg, also of the University of Utah, and David Sovich, of the University of Kentucky, have shown as much in a recent paper. They start with a look at a somewhat different kind of index fund: a commodity-futures index fund, which tracks the expected price of things such as gold and copper rather than the current price of Raytheon and Apple shares. Companies large and small base billions of dollars in expenditures on commodity futures. A firm might hold off on buying copper or rush a purchase of gold based on where it expects prices to go.

When one of these commodities ends up on an index, the firms that use that commodity in their business see a 6 percent increase in costs and a 40 percent decrease in operating profits, relative to firms without exposure to the commodity, the academics found. Their theory is that ETF trading shifts prices in subtle ways, making it harder for businesses to know when to buy their gold and copper. Corporate executives “are being influenced by what happens in the futures market, and what happens in the futures market is being influenced by ETF trading,” Brogaard told me.

More broadly, the Bernstein analysts, among others, worry that index-linked investing is increasing correlation, whereby the prices of stocks, bonds, and other assets move up or down or sideways together. As the financial economist Jeffrey Wurgler has written, the price fluctuations of a newly indexed stock “magically and quickly” change. A firm’s shares begin to move “more closely with its 499 new neighbors and less closely with the rest of the market. It is as if it has joined a new school of fish.”

Afar bigger concern is that the rise of the indexers might be making American firms less competitive, through “common ownership,” in which the mega-asset managers control large stakes in multiple competitors in the same industry. The passive firms control big chunks of the airlines American, Delta, JetBlue, Southwest, and United, for instance, as well as big chunks of Bank of America, Citi, JPMorgan Chase, and Wells Fargo. Name an industry with a significant number of publicly traded firms—auto, retail, fast food, agribusiness, telecom—and the same is likely to be true.

The rise of common ownership might be perverting corporate behavior in weird ways, academics argue. Think about the incentives like this: Let’s imagine that you are a major shareholder in a public widget company. We’d expect you to desire—insist, even—that the company fight for market share and profits. But now imagine that you are a major shareholder in all the important widget companies. You would no longer really care which one succeeded, particularly not if one company doing better meant another company doing worse. You’d just care about the widget sector’s corporate profits, which would go up if the widget companies quit competing with one another and started raising prices to pad their bottom line.

The research on whether common ownership is in fact reducing competition is murky, contested, and sometimes contradictory. Still, one major paper showed that common ownership of airline stocks had the effect of raising ticket prices by 3 to 7 percent. A separate study showed that consumers are paying higher prices for prescription medicines because generic-drug makers have less incentive to compete with the companies making name-brand drugs. Yet another study showed that common ownership is leading retail banks to charge higher prices.

Asset managers have pushed back hard, describing this research as baseless and incoherent. “The economics literature purporting to link index funds and higher prices is based on fragile evidence and fundamental misconceptions,” one BlackRock white paper on the subject argues. “It does not provide a plausible causal explanation of how common ownership can lead to higher prices.”

Nobody is arguing that asset managers are facilitating corporate collusion or encouraging managers in rival firms to stop competing. New research suggests that common ownership could alter corporate executives’ financial incentives “without communication between shareholders and firms, coordination between firms, knowledge of shareholders’ incentives, or market-specific interventions by top managers.” Across firms, executive compensation seems to be more closely linked to a company’s performance when its shareholders are not invested in the company’s rivals, the study found. In other words, firms stop paying managers for performance when owned by the same people who own their rivals.

The market clout of the indexers raises other questions too. The actual owners of the stocks—not the index-fund managers but the people putting money into index funds—have little say over the companies they own. Vanguard, Fidelity, and State Street, not Mom and Dad, vote in shareholder elections. As John Coates, the Harvard professor, notes: “For the most valuable public company in the world, three individuals can in principle swing the vote of 17 percent of its shares. Generally, a significant fraction of shareholders do not vote, even if in contested battles. As a result, the 17 percent actually represents more like 25 percent or more of the likely votes in contested votes. That share of the vote will generally be pivotal.” In fact, the Big Three cast roughly 25 percent of the votes in S&P 500 companies.

Another worry is that these firms are too passive rather than too powerful. They are committed to being as lean and hands-off as possible, in order to reduce their fees. They do not tend to get involved in shareholder actions or small-bore corporate management, perhaps in part because any one company doing well against its peers is not of interest to the indexers, who want more assets under management and higher corporate profits.

It’s not easy being big.

Just last month, Senator Elizabeth Warren grilled Treasury Secretary Janet Yellen on whether BlackRock, with its $9 trillion in assets under management, is too big to fail. The Federal Trade Commission is contemplating whether the big index-fund families pose antitrust concerns. Government watchdogs have raised alarm bells about the revolving door, as the Biden administration continues to draw officials from the Big Three. In an interview with The Wall Street Journal, the chief executive officer of State Street said he thought it was “almost inevitable, when you see this kind of concentration, that it probably will make sense to do something about it.”

But figuring out what the appropriate restrictions are depends on determining just what the problem with the indexers is—are they distorting price signals, raising the cost of consumer goods, posing financial systemic risk, or do they just have the market cornered? Then, what to do about it? Common ownership is not a problem the government is used to handling.

Yet, thanks to the passive revolution, a broad variety and huge number of firms might have less incentive to compete. The effect on the real economy might look a lot like that of rising corporate concentration. And the two phenomena might be catalyzing one another, as index investing increases the number of mergers and makes them more lucrative.

In recent decades, the whole economy has gone on autopilot. Index-fund investment is hyper-concentrated. So is online retail. So are pharmaceuticals. So is broadband. Name an industry, and it is likely dominated by a handful of giant players. That has led to all sorts of deleterious downstream effects: suppressing workers’ wages, raising consumer prices, stifling innovation, stoking inequality, and suffocating business creation. The problem is not just the indexers. It is the public markets they reflect, where more chaos, more speculation, more risk, more innovation, and more competition are desperately needed.

The antidote lies not just in fixing passive investment, but in making markets be markets again. Perhaps we could all use a little more of that manic stock-picking energy, not less.

Thursday, 1 April 2021

March Wrap and a Year to Remember

MLB isn't the only sport in the USA making changes with the NFL announcing today that the regular season will be increased from 16 games to 17, the first increase in scheduled games since 1978 when the league added two more to make the current 16.  

The plan for at least some of the future game 17s to be played at international sites is reminiscent of the FA's much discussed 'Game 39' plans which, at least so far, have come to naught. Whether these would be officially Neutral games or would nominally have a Home and Away team remains to be seen, but if the latter, in a sport with a short season such as NFL that extra Home game could prove crucial. It will be interesting to see how this bonus Home game is awarded. 

The next NFL season is a long way off however, and more pressing is the 2021 MLB Season which, as mentioned here previously, starts today with every club in action in the first of a planned 162 match regular season. 

For Opening Day games, one winning system over the years has been to back teams that are both the favourite and won fewer games last season than their opponent. Since last season was so very short at just 60 games, this metric may not be so reliable as that across a full season, so invest at your own risk. 
All-time (which for MLB means since 2005) the ROI on the Money Line is 22.7% while on the Run Line it is 53% but the sample size of 60 games is too small to draw any conclusions.

There is currently just the one qualifier for today, but odds can change and it looks like a few matches are missing probably due to doubts over the starting pitcher, e.g. the Boston Red Sox. There is also at least one game looking likely to be postponed for COVID reasons, something that doesn't augur well for the long season ahead.

The NHL System hasn't ended the month in the best of runs with a season high losing streak of six games before last night, which saw one win, one postponed due to COVID and one loss but at least it wasn't as bad a month or losing run as that of the Buffalo Sabres who lost 18 games straight (including two in overtime and one by shootout) to tie the record held by the Pittsburgh Penguins in 2003-04 which was prior to the shootout being introduced.

The ROI for March was a still respectable 5%, despite just the one win in the last eight. 

For the NBA Totals System, March's ROI from just 30 selections (due to the All-Star break) was 7.4%, or 2.23 units. 
The 24.4% ROI for the season is by some way the highest since the point totals started climbing a few years ago.

While making money from sports is fun, it's also relatively insignificant in monetary terms compared to the money to be made from more traditional investments. I mentioned the March 2020 dramas in the financial markets recently, and some year-on-year comparisons at the end of Q1 are interesting:
Unfortunately I was late to the Bitcoin ($BTC) party, but if you are not long Bitcoin then you are essentially short Bitcoin, and I'd rather be long and wrong than miss out as Bitcoin becomes more mainstream and broader adoption and acceptance  drives up the price. Tesla I have written about for a while now, but even the returns from some of the main indexes were excellent, although as readers will know, investing in the UK hasn't been recommended for a while now, continually falling short of the US markets. While 24% YOY might look great at first sight, in comparison with other choices, it's actually very disappointing with a high opportunity cost.
Small differences in return make a big difference over time, for example 100 units invested in the FTSE at the start of this century would now be worth just 96.88 units. Contrast this with the same investment in the S&P 500 which would now be worth 270.04 units.  Not that these differences are necessarily 'small', but even a fraction of a percent as in fees for managed funds versus index funds can make a difference. 

The S&P 500 broke the 4,000 level today for the first time, which is encouraging for the future.
It's also now been 50 trading days since Biden took office, and while he's 
fortunately nothing like his predecessor who would take credit for up days and stay silent on bad days, the S&P 500 increased by 4.6% during this time for Biden which is a better performance that Trump with 'his' 4.4%.

Good luck in April and Q2. 

Monday, 29 March 2021

Play Ball

MLB is back this week, with a full slate of matches scheduled for April Fools' Day. 

Due to the pandemic, the 2020 season was like no other, for example:
  • The normal 162 game schedule was shortened to just 60. 
  • Teams played just nine opponents all season, instead of the typical 19 or 20. 
  • The season didn't start until late July. 
  • The Blue jays played their home games in Buffalo. 
  • The play-offs were extended to 16 teams, and all post season games after the first round were held at neutral venues. 
  • The Designated Hitter (DH) rule was used everywhere, and the doubleheader rule was changed in mid-season after one had already been played under the normal rules. 
  • The extra innings rule was changed
All in all, it was a bit of a mess and a season that meant meaningful comparisons with previous seasons were pretty much impossible.

The Opening Day System was again profitable, but that was about it. The perennially profitable T-Bone System couldn't cope, registering its second losing season since 2010:
This strategy was profitable in matches hosted by American League teams versus a National League opponent, which were matches unaffected by the DH rule change. In fact 2020 was the best season for these matchups although it is a relatively rare scenario. 

'Hot favourites' managed the rare feat of consecutive losing months although July was a short month with just 22 qualifiers:
With some rule changes remaining in place, the big question is whether last season was a blip or whether longstanding inefficiencies have coincidentally corrected.

Seven-inning doubleheaders and runners on second base to start extra innings will return this season, but the universal Designated Hitter rule has been dispatched as has the expanded play-off format.

On a personal note, my wife is very excited about the prospects of her home town team (San Diego Padres) this season, as they are third favourites in the betting to win the World Series behind the Los Angeles Dodgers and the New York Yankees. 

Last season they reached the playoffs for the first time since 2006 and were eliminated in the NLDS (aka Quarter-Finals) by the eventual winners - and local rivals - Los Angeles Dodgers. 

Fun facts: The Padres are the only team in MLB yet to throw a no-hitter, but on the other hand, last season they did become the first team in MLB history to hit a grand slam in four consecutive games. So there's that.

Thursday, 25 March 2021

Target Folly

One of the investment based accounts I follow on Twitter is that of @SJosephBurns, and his content is usually fairly innocent inspirational quotes with the occasional link to an interesting article or other account.

However, this post from last week was a little different and, in my opinion, flat out wrong:
I've covered this idea of targets, whether they be daily, weekly, monthly or whateverly, previously and they make no sense unless achieving the target means you'll never be returning to the fray again. 

For most of us, we should be making hay while the sun shines, not stopping on the 15th of July just because the sun has shone for two straight weeks. 

The shining sun in our case is that elusive edge, and depending on your market or markets of choice, it may be one that, on average, shows up once a day or once a month. The point is that we don't know when an opportunity will present itself. An edge that shows up on average 'once a day' isn't an edge that can only show up once a day. I replied as below:
I can't see a scenario where the advice proffered makes any sense unless you are gambling in the aforementioned casino, in which case walking away while ahead is good advice. Some days my systems have no qualifiers, while on other days as many as seven - most recently Feb 27th when the basic NHL System had that number of qualifiers. Six won, so stopping at a winner would have been costly, but even had the day been a losing one, the idea is to maximise your opportunities, not to minimise them. 

If you have an edge, invest. Another, more rational, Tweet from Steve Burns today says this:

Wednesday, 24 March 2021

Year 14 And a Lesson in Maintaining Perspective

I am finally vertical, although the foot / ankle is still swollen and somewhat uncomfortable, and likely will be for several months, but at least I'm now somewhat mobile and working through the physical therapy 'step' of the process. 

It's been an interesting 12 months. Exactly one year ago today, my spreadsheet was showing a record drawdown due to the overreaction in the financial markets to the pandemic, but a year on and it is close to 64.6% higher, setting its most recent all-time new high on March 15th. 

Some of that increase was thanks to $TSLA which jumped 762% from an adjusted price of $86.86 to $662.16 but the markets in general have rebounded strongly from those March 2020 lows.

One annual birthday tradition these days is a meeting with a Financial Advisor who yesterday advised that I was too heavily weighted in $TSLA but with investment experts such as ARK, which "focuses solely on offering investment solutions to capture disruptive innovation in the public equity markets" now looking at a price of $3,000 by 2025, it's not a stock I am in a hurry to sell. 
Last year, ARK estimated that in 2024 Tesla’s share price would hit $7,000 per share, or $1,400 adjusted for its five for one stock split. Based on our updated research, we now estimate that it could approach $3,000 in 2025.
Some of you may be aware that Tesla CEO Elon Musk recently invested $1.5 billion of the company's money in Bitcoin ($BTC) which is a play I am happy to be involved with. My efforts to buy actual Bitcoin were abandoned as the process became far too complicated for a simpleton like myself who has trouble remembering the most basic of passwords, but I have invested in a Bitcoin Trust which is far simpler. The $TSLA angle is another way of being involved. 
Tesla’s investors, whether direct through the company shares or indirect through active or passive funds, have now effectively become holders of cryptocurrency Bitcoin, without actually buying it. This happened as Tesla’s famed CEO Elon Musk invested a staggering $1.5 billion of the company’s money into buying Bitcoin. Elon Musk also said that Tesla will accept Bitcoin as a form of payment soon.

This gives Tesla shareholders exposure to the popular cryptocurrency — some might welcome it, considering the meteoric surge in Bitcoin prices; yet, some others may not like the risk and volatility that come along. Notably, it’s not only the direct Tesla shareholders that now have Bitcoin exposure, but those with indirect and passive investments too, such as S&P 500 index, several Vanguard index funds, Fidelity group funds, and many more.
As for betting, the NHL System I mentioned in my last post has continued to perform well, although it did have two consecutive losing days last week which triggered an email from the reader I mentioned may have retired rich. He wrote that the...
NHL strategy we discussed before was doing OK until recently - do you think it is just variance or should I maybe move the threshold from...
I'm highlighting this because I think maintaining perspective, even after the smallest of setbacks, is incredibly difficult for many people. Stake appropriately with money you can afford to lose, and stay the course.

Some facts for consideration here are that for the NHL we have 15 seasons of data, including this current season, and this system has had one losing season which was back in 2007. It's pretty solid, but yes, on Wednesday and Thursday last week, four of the five selections lost. It happens. In fact, the system has lost money in 46 of the 116 months so a two day losing run is far from the worst that can be expected, but after 4,174 selections, an ROI of 6.7% is hard to dismiss and the idea that one of the primary qualifiers should be changed after a losing couple of days is irrational. While such simple systems shouldn't persist successfully indefinitely, one needs more evidence than this to make an accurate assessment. As we've seen from the NFL, the markets can stay inefficient for a very long time.
In fact it has a p-value of zero, but slow and steady systems like this aren't sexy and exciting, but require discipline and patience.

Just the one (losing) selection for the EPL Draw (Toss-Up) system with Arsenal v Tottenham Hotspur last week.
The ROI for the season drops to 67%, and all-time (since 2000) to 8%, but be wary of getting emotional about small samples, whether they're positive or negative.  
Incidentally, this post marks the start of year 14 for this blog, with the inaugural entry made back on March 21st, 2008.
2.3 million hits all time may sound like a lot, but if you break it down by day it's fewer than 500. But please keep reading. Now that I'm mobile again, I'll endeavour to post more frequently.

Thursday, 4 March 2021

Breaking Updates

Obviously not the start to 2021 that I was anticipating, and I'm still a few days away from being able to put weight on my leg which now looks like a Meccano project, but I'm a lot closer to walking again than Tiger Woods who, by all accounts, did even worse damage to his right leg.

My surgery took place in January and with screws and plates in place (permanently), I'm hoping to be an upright citizen again soon. 

While it wasn't on my bucket list, if I had to break a leg at some time in my life, it's hard to think of a better time than now, given the restrictions on life and work that continue to be in place. I'm extremely fortunate that work was hardly impacted at all, and I was able to move seamlessly from a work-from-home situation to a work-from-bed one. 

At the time of my accident, I was in the process of a post reviewing some interesting trends in the EPL markets during the Xmas / New Year holiday season, but the time sensitive nature of that means it'll have to wait, and I'll probably include it in the end of season summary. The rationale for looking at this was that with games coming thick and fast at this time of year, the market would be expected to be less efficient than usual, and that certainly seems to be the case. 

While I have taken time away from blogging, the investing has been able to continue with another NFL season now complete, and the EPL, NHL and NBA seasons in full swing, albeit with various restrictions and changes in place due to the ongoing pandemic.

Starting with the NFL since the 2020 season ended last month, and the strategy of backing small underdogs playing away continued its run of success with no impact to profits from the COVID changes other than fewer selections than usual, just 59 this season but generating a decent ROI of 10.9%
As I have been talking about this bias for many years, I hope some of you were along for the ride, but I suspect its value isn't fully appreciated or maybe 59 selections in a season is considered not worth bothering with. The Divisional qualifiers added a little extra, and the six play-off qualifiers added another four winners from six.

The idea that there is a market bias against away teams is also persistent in the NHL this season. One reader wrote to me at the start of the season confused as to why there were no selections showing up for him. The reason was that the pandemic had forced the NHL into restructuring its Divisions, so the criteria he was looking for was no longer present.

His disappointment was palpable, and whether it was the painkillers or a fleeting moment of rare generosity I'm not sure, but I rashly and, more concerningly, freely offered an alternative that used the basic principles of the former system which had been profitable in every season since the NHL last reorganised its Divisions, and I thought would continue to be profitable.

While I haven't head from him since, the reason may well be that he has retired rich, with the basic system currently up 23.9% and 35.09 points after 112 selections:
While the 2019 NBA regular season was cut short, the theory that away teams might benefit from the absence of crowds showed some merit, at least for games where they were a small underdog. This has continued into the 2020 season, and these selections are hitting at a rate of 58.2% to date and at 65.3% (after 50 selections) if you factor in the previous outing, which often is overreacted to by the markets. The NHL system mentioned earlier is also one where the market doesn't accurately reflect previous results, and the basic ROI can easily be improved upon.

Also hitting in the 65% range are the Overs when the total is 'high' - high being a relative term since the game has changed quite dramatically over the past few seasons and what was once considered high is now quite low. 

My usual strategy here is to take the previous seasons average, and add 10 points, and this has served us well during the era of higher scoring over the past few seasons.
The bias at work here should be obvious, but it appears to take a while for the market to recognise that the game has changed.

And finally, the EPL and a season like no other with more Away wins than Home, continuing the theme that there's no place like Away these days.

For the Draw backers in 'Toss-Up' matches, it's so far so good with the 11 selections generating 9.06 points so far although the 'Close' category matches are down by 19.67 points. 
Some of you may have also noticed that six of the Big 6 matches played so far have ended 0:0, not including the Liverpool v Chelsea game currently in progress.   

Monday, 25 January 2021

New Year, New Challenge

Apologies for the lack of posts in recent weeks. As some of you will know from Twitter, I had an accident at the start of the year which means I shall be mostly laid up in bed or on the couch until mid-March, neither location being conducive to creating new posts. The phone works just fine for brief entries such as this one, but it’ll be a while until normal service is resumed. Surgery is this week, then recovery can begin, all being well. Stay safe.