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‘Cutch’ and Stocks —
any correlation?
LOOKING FOR SIMILARITIES BETWEEN
BASEBALL’S MVP AND STOCK MARKET AVERAGES
By Daniel L. Henry
pen this article in late
frigid wind
A stoIand below, I’m lookingJanuary, withMeanwhilethechills dipping
-30
forward to the start of
2014 baseball
season
warmer weather in the ‘burgh.
my nephew
Philip is in Bradenton, Fla., for six weeks, employed by the Pittsburgh
Pirates, experiencing no winds and 75 degrees! For the rest of us
northerners, button up your coats while we take a quick look back at the
phenomenal year that 2013 was for U.S. stocks and also for our beloved
Pirates star, Andrew McCutchen.
The S & P 500, which is an index comprised of 500 stocks chosen as an
indicator of large company U.S. equities, opened 2013 trading at 1,426 and
closed on Dec. 31, 2013, at 1,848. Considering the impact of dividends
reinvested, the index gained over 32%.
Meanwhile “Cutch,” the face of the Pirates franchise, had an equally
spectacular year. He led our Buccos well past the elusive “hold our breath
until we break .500 moment,” to a regular season record of 94-68 and a
Wild-Card home playoff game win! For his individual efforts, he was voted
the 2013 National League’s Most Valuable Player. While there are many
terrific aspects of his game, let’s just consider one; his batting average in the
’13 season was .317. Let’s crunch a few numbers to see if we can correlate
Andrew’s batting average to the S & P 500.
Cutch has 2,751 total at-bats since entering the big leagues in 2009
and his career average is .296. His lowest year at the plate was 2011 when
he managed to hit only .259, yet was followed by his best year 2012, a
significant raise to .327. Thus, relative to his career average, he usually
hits 10% above or below it in a given year, which we will call his “standard
deviation.”
Turning to the S & P 500, let’s summarize its past 10 calendar years.
This, of course, is twice the length of Andrew’s five-year career to date, yet
if each trading day may be considered an at-bat, the number of S & P days
over 10 years is very close to Andrew’s career at-bats.
The S & P 500’s “average performance” over the past 10 years is 7.41%.
Its best year over that span was 2013, when it posted a gain of 32%, which
is nearly 25% points above the average. Its worst year was 2008, a loss
of 37%, which is nearly 45% points below. Its true statistical standard
deviation over the past decade is 14.62%.
What is the relevance of these comparisons? While we cannot guarantee
the performance of a baseball star or of the financial markets going
forward, we can look back and see what their performance has been over
meaningful time periods and consider what the normal range above or
below that average is. Has Andrew ever gone 0 for 4 in a game? Had a bad
week? Even a poor month? Of course he has, yet conversely, he has also
had stellar individual games, weeks and months of any season. During
downturns, even the most fickle Pirates fan would not dare consider
trading him!
We’ve just ended a 10-year stretch in the S & P when during the dire
bottom, many investors opted to trade in their stocks for the perceived
“safety” of cash. Those who held on were rewarded with a major comeback
and a decent decade, which averaged 7.41% per year.
Calendar year 2014 represents a “new season” in the financial markets
and after the first month of 2014, so far, no good! The S & P is down
2.7%, which would be like Andrew going hitless in his first three-game
series. Some nervous investors are already thinking of paring down,
or eliminating altogether, their diversified, long-term-oriented equity
positions. I believe that long-term investors should chalk up the start of
2014, regardless of how long its “slump” lasts, as a bad start of what should
be a promising season. I trust that if Andrew faces tough sledding early in
the 2014 campaign, the Bucs faithful will continue to chant “M-V-P” at
each plate appearance.
)M