Take me out to the ball game, take me out to the crowd, come on, sing with me. Buy Me some peanuts and Cracker Jacks. I don’t care if we never go back because it’s root, root, root for the home team. If they don’t win it’s a shame because it’s one, two, three strikes you’re out at the old ball game.
Thank you. Thank you very much. Yes, this is the Option Genius Podcast. And I have baseball fever on my mind. Well, the World Series just ended folks and unfortunately the Houston Astros did not win, but that’s okay. Because I’m not a big league fan, although I did take my oldest son to his first Astros game, his first major league game. We had a blast. They played the Toronto Blue Jays. We did lose, but it was an exciting game and we’re seated all the way on the field, almost. We can like reach over and touch the field. Awesome seats … Just a blast.
But really I did that because he is really into baseball right now, So he’s seven years old, he plays what they call Machine Pitch. So it’s not tee ball and they’re not old enough where they can actually pitch themselves so they have this machine that pitches for them and then they hit and they do everything else and he did it last season in the fall and that was his first season with the machine and he had maybe, I think he had like three hits all season so they had like 10 games and he had three hits so he kept striking out over and over and over again.
But that little guy, he didn’t give up, he kept trying and kept trying. I took him to the batting cages about, we spend a couple of hours there at the batting cages. Half an hour each time and he practices at home. I got him this donut, which is like this little round weight that you put on a bat and he puts it on his bat and he swings everyday, he makes like 50 or 100 swings every day to get stronger. And this season I am happy to report, that in the six games that he’s played so far, he has 12 hits. Yes, 12 hits. He got like three last season so far he’s already got 12 hits and they got four more games to play, so I am super excited. He’s confidence is through the roof, he’s like batting number three because he’s so consistent. He always gets on base.
Last season I was praying, please get a hit, please hit the ball. This time if he doesn’t get a hit, I’m surprised like, “Hey, what happened? Are you okay? Did you get hurt Or something? What happened?.” Its so frigging awesome, as a father, I am so proud. You know I’m so proud that he’s happy. Now why am I talking about baseball? What does this have to do with options? Right? Well, this has to do with baseball and options because I want to talk about the movie Moneyball. Okay. Movie, and it was a book starring Brad Pitt. If you haven’t seen his movie yet, I would like you to go out and rent it or Netflix it or whatever. Get the movie, watch it, and you’re gonna learn this amazing lesson that I’m going to condense for you here, but you really gotta watch it. Okay?
So it’s about a guy named Billy Beane. That’s his real name. Billy Beane. He’s a former ball player who was hired to take over as the general manager of the Oakland A’s. One of the worst teams in baseball at the time, they were doing okay but they had a problem. See, they’re not a … They’re called a small market team, which means that they don’t have a lot of fans to draw from, and so they don’t make as much money as other teams do. And so their budget is much, much smaller. So they need a budget in order to hire the best players. So if you want the big home run hitters, you want the, the names that everybody knows, you got to pay him a lot of money. And the Oakland A’s, they didn’t have that budget. His job, Billy Beane’s job was to recruit a team of players that could win games with the budget one third the size of the other teams in the league.
So billy couldn’t afford to recruit the big hitters. In fact, what they used to do is they would have, they would go into colleges and whatnot and scout these players, these young guys that they could bring in cheap and they would train them and they would work with them and they would get them good and teach them. But as soon as these guys got good, they would leave for other teams, because now they’re good players, right? So they get offers from other teams. So all of their good players, they spend years, with the minor leagues and then training them and giving them exposure and losing games because these guys mess up. But once they get good, once they’re in their prime, they realize that, “Hey, I can get more money at the Yankees or I can get more money over here, these guys are giving me double what the A’s are giving me, so why don’t I go over there.” and the A’s couldn’t match those salaries.
So they would lose their best players. And that was like a big problem. Now, if you’re a manager, what are you going to do? Right? You can’t afford the top notch talent like everybody else can. So what do you do? You just give up? Well, by accident Billy ran into what we would call today, a Quant, a Statistician. This guy had a new mind blowing strategy. So it was mind blowing because nobody else believed in it at the time it was new stuff. The strategy was that home runs don’t win games. The best pitching, doesn’t win games. The best defense, doesn’t win games. That’s pretty crazy, right? Home runs don’t win, a big bat doesn’t win baseball games.
Babe Ruth comes to mind. He must’ve won. He had a lot of home runs. He must have won a lot of games, right? He’s famous. Best pitching doesn’t win the game. Best Defense. I thought, the best defense was a good offense or no a good offense is the best defense, something like that. This guy’s strategy was that in order to win games, you have to score runs, runs win games, the team that scores the most runs and has a decent defense, will win most of the time and he had the statistics to prove it, but at this point it was only a theory that nobody else in baseball was taking seriously, but now you have Billy Beane who didn’t really have much of a choice, right? He could keep doing what they’ve been doing, train all these players and they get rated and have a decent year but nothing really to write home about or they could go all in on this new strategy and maybe actually make it to the playoffs, maybe actually make it to the world series.
So they went through all of the available players and they looked at them and they looked at their statistics. They looked at their numbers, they looked at who was good at this, who was good at that, and they started using something that they called Sabermetrics. Now the word Sabermetrics comes from the acronym Saber s.a.b.r, which stands for The Society For American Baseball Research. So Sabermetrics are really just calculations that reveal strengths and weaknesses of players. So they went looking for the players that just got on base. If you don’t get on base, you can’t score. But once you do get on base, good things start to happen. So that became the game plan. Just get on base, hitting singles, hitting doubles, getting walks, getting hit by the pitcher, whatever it doesn’t matter.
They had one guy who’s, that was he was famous for. He was famous for getting hit by the pitcher and they wanted him because he got on base. If they got on base enough, they would score more than the other teams. That was the plan. That was the strategy. Did it work? Well, the Oakland A’s reached the playoffs in four consecutive years from 2000 to 2003 and during the 2002 season they set an American League record winning 20 games in a row, they set a record for winning 20 games in a row. So obviously it worked and that’s when the other team’s got interested because everybody likes to copy each other. They be like, “Wait, what are they doing? How are they winning so much with all these loser players.” That’s what they thought of them.
They thought they had all these players that nobody else wanted and because nobody else wanted them, they could afford them, they could pay them peanuts. And so the Boston Red Sox looked into this and they wanted to hire Billy to manage their team. So they came up to him and said, “Hey, we’ll give you more money. we’ll do whatever you want. You just implement this system and we love to have you.” He said no because he wanted to do it in Oakland. He wanted to win with Oakland. So the Red Sox went and hired somebody else that knew the same strategy and use the same strategy and the next year the A’s didn’t win the world series, but the red sox did using the same strategy and that completely proved that this strategy worked and it completely changed the game of baseball. And then years later, in 2014, my hometown Houston Astros actually rebuilt their entire team using sabermetrics.
And because of that, because they did this, because they went in and they used all this stuff, sports illustrated magazine did a cover story on them and actually predicted that they would win the world series three years later in 2017. So it’ll take a while for them to work out the kinks, but within three years these guys are going to win the world series. That’s what the prediction was, and that is exactly what happened. The Astros won the 2017 world series. Now I think I mentioned earlier that the 2018 world series just finished and unfortunately it wasn’t the Astros. They didn’t make it to the series, they made it to the conference finals and they lost to the Dodgers. But guess who did win the world series? The Red Sox.
So what does this have to do with passive trading? Because the exact same backwards thinking that was dominant in baseball at the time is still dominant in the stock market, because you see most traders are out there trying to make huge gains and hit home runs. They want to turn $1,000 into $100,000 overnight. Those are cocktail party stories. Right? “Oh yeah, I turned a big guy. Oh, I turned $500 into a million dollars.” That’s what sexy, That’s what sells horses. That’s what people buy, but that stuff doesn’t work. Trust me, I’ve tried it. I’ve learned the hard way that the best way to get ahead in the markets is to hit base hits, singles and doubles instead of striking out going for home runs, just get on base, just make money on a trade. So I would rather make smaller, safer gains and win the overwhelming majority of the time than strike out while swinging for the fences. Does that make sense? You guys following me?
That is what passive trading focuses on. The trades we do, aim to make consistent, stable gains over and over. So we don’t spend hours and hours looking for the home run trade. That once in a while, that elusive. ” oh, If I could find this trade, I’ll be retired for the rest of my life.” You know, like a lottery ticket, lottery tickets don’t pay off. We know that, we don’t make thousands and thousands of trades hoping to win on a handful of them, right?
The most majority traders, they make a lot of trades and they lose on most of them and that kills you psychologically, I mean really loser after loser after loser, hoping that some of them will win. That’s not a way to trade. We want to win on the overwhelming majority of our trades. We want to feel good about ourselves. We want to see our accounts growing day by day, right? And we want really, really good returns because we know that base hits win Baseball Games and we know that small consistent gains lead to financial freedom and in the end isn’t that what we’re doing here? Isn’t that why we’re trading, for a better standard of living for a better way of living, a better way of life, financial freedom, time freedom, choice freedom that we can do what we want, when we want and how we want to do it.
That’s what passive trading can get you. And if you want that, well first step, trade with the odds in your favor.
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