Trading Lessons in Clemens Missteps
Ways to improve without juicing.
Having grown up in Baltimore, I am a die-hard Orioles fan. With that said, my baseball credibility is obviously pretty low these days. I have certainly been privy to some ugly moments in recent years. Wednesday however was (again) a pathetic day for the game of baseball. There are no winners in a high stakes game of televised mud-slinging.
In one corner, the most dominant pitcher of modern baseball - armed with 354 career wins (8th all-time) in 707 career starts (6th all-time), nearly 5,000 innings pitched, 4,672 strike outs (2nd all-time), 7 Cy Young Awards (most ever), and 2 World Championships in six appearances. In 24 years of big league service, the Rocket has posted 21 winning seasons. In summation... a legendary career and a first ballot Hall of Fame nominee. At issue? Only his accomplishments, his talent, his word and his legacy.
His accuser? Brian McNamee. Former NYC cop. Former New York Yankees trainer. Jock chaser. Alleged rapist. Steroid injector. Admitted liar. Parasite.
In the court of public opinion there could be no better fall-guy; a profoundly average, seemingly shady middle-man looking to save his own skin and in the process take down one of this country's greatest sports heroes.
Truth is a funny thing though. Recollections conveniently diverge as the spin cycle of the human brain kicks into gear. People recall what they choose to recall and in the process are fully convinced of an altered version of reality. The real story will probably never be known fully or completely. Neither side appeared terribly credible. Give Clemens some credit though, at least that he didn't fly off the handle temporarily.
In the midst of the circus that is currently Major League Baseball there must some worthwhile takeaways, right?
I had the timely opportunity last night to sit down with a current MLB Strength and Conditioning Coach. Our conversation took a number of interesting turns (he is prohibited by MLB from discussing his views on Clemens and/or steroids specifically) but it somehow served to reinforce some important albeit intuitive points relevant to the markets which I thought I would share.
- Protect your name and reputation – they matter above all else. As Warren Buffet noted "It takes 20 years to build a reputation and five minutes to ruin it." Be careful of the company / relationships you keep. There are people of ill-repute at all levels out there. Choose your business partners, associates, clients and friends wisely. Integrity is securely woven into an organizational culture. MLB birthed the steroid problem through its unwillingness and inability to address it. If the authority / effectiveness of your compliance department, internal controls, or code of ethics is kinda like Rep. Henry Waxman's hairline… be warned.
- There are no shortcuts in life, in business or in sports. True professionals go out each day and compete fiercely but fairly. Cheaters ultimately fail (ask Jerome Kerviel).
- There are two sides to every story and reality is usually somewhere in the middle. Sorting it out takes time and is a matter of intelligence and logic, evaluating both sides critically and objectively, and understanding the inherent bias and credibility of various sources. Balance is critical. Bottom line: Fully understand both sides of the trade before you make it.
- Accept responsibility for your actions. Ignorance is not a plausible basis for action or inaction. You will be right and wrong oftentimes in the markets. Take ownership of all of your decisions; build on your success and learn from your mistakes.
- Keep your head in the game. Visualize success and stay focused. Resist the temptation to get thrown off your game by allowing your emotions to become destructive. Understand and harness emotion to work for you, not against.
- Risk management is about preventative care. In an emergency medicine context, sometimes a trauma surgeon must cut off a limb to save the rest of the body. A good strength and conditioning program is all about preventing a problem before it occurs to reduce the risk and / or minimize any resulting damage.
- Preparation and education. Before you learn the tricks of the trade, learn the trade. Success begins with solid fundamentals and by reinforcing good habits. Develop a routine. As Gil Caffray once put it, "strive for the repeatability of excellence."
- Set goals and evaluate your progress. Times change – so should your investment approach. Adjust the gameplan based on the situation and take what the market is giving you. Hitters approach an at-bat differently with an 0-2 count vs. a 2-0 count or based on the score, inning, or runners on base. Traders must do the same.
- Working hard but effectively. A lot of young players build muscle in their delts and pectoral muscles. This might help them with the ladies at the beach but it works against them in throwing a baseball 90+ mph. Figure out what is critical to your success and prioritize it.
- Stay in the game. You can't win from the sidelines. Keep that in mind in this environment.
Now that the Clemens testimony is over I guess I will shift focus back to Mr. Bernanke and crew. There are abscesses on the economy and the credit markets. The Fed still shares a sense of denial about size and scope of the problem. There is a palpable mass of debt that is growing and threatening the entire system. And the Fed continues to attempt to stimulate growth and repair damage by injecting the markets with a new blend of steroid known as M3.
As we all know, there are serious risks to using steroids. Hopefully the rise, fall and explosion of "the Rocket" has not provided a precarious analog for the markets. Time will tell.
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