Ah, March. Spring training has commenced, and 30 hopeful teams take the field. Some will be underdogs, some will be overrated, and some will fall into the middle of the pack. Nothing better than seeing your team put the building blocks of success together in the offseason. So much hope.
Going into the season, can you pick out four teams that you believe will have the best results? Chances are, with any research a few of your four choices will make deep runs in the playoffs. How did you know? Maybe you analyzed talent, you analyzed strength of schedule, and you analyzed cap space for mid-season moves. Maybe you read a few articles from a well-respected MLB writer. Either way, odds are researched choices will have some measure of success.
Diversification theory would say invest somewhat equal weightings into each team, even the ones that you know have a low expected rate of success. That way, you have some winners and some losers, and will generally fall in the middle of the pack. This seems foolish, as a little research could be all that is needed to take four concentrated positions in the four teams with the highest expected outcomes, which historically have significantly outperformed the average.
See the symbolism here? Sector rotation can be as active or inactive as one desires. If we are thinking seasons, it was clear the Yankees in the 90’s would have been a great place to invest. This was clear as day with the amount of talent on the roster. Tech stocks through the pandemic are a perfect example of this. Second-order thinking looked something like this: Okay, the world is in crisis and everyone is at home. Which sectors will outperform? What are people doing day to day? Where are people spending their money? With these three questions, one may surmise the technology industry would boom.
Times are changing rapidly, and market dynamics are changing along with it. Just like sports teams, it is typically easier to predict a sector’s success over the next year than it is to predict over the next ten years. Let’s take a look at the boom of the energy sector since Biden became president; here is a president who wants to promote the conversion to green energy and is willing to create and implement policies that align with this goal. This has a predictable outcome with the possibility of a high probability of success.
Second-order thinking could be the difference between you having average returns or you setting yourself apart with high level results. Look forward, anticipate, and enjoy the baseball season!