Yesterday morning, I attended a breakfast with guest speaker Mark Shapiro, General Manager of the Cleveland Indians. While I’m no expert, I have learned a great deal more about the game through my twelve year old son, Pete. He became a fan at an early age, evident in a family video I have of him rattling off the entire 1998 Cleveland Indian’s lineup at the tender age of three. I’m sure I didn’t even know the positions at that age, let alone any player names. Unfortunately, Pete couldn’t attend the breakfast because he had a school math test, so I had to do my best to fill his shoes. Hopefully, I didn’t ask too many stupid questions.
Shapiro spoke about this being a season of fulfillment for the Indians, the culmination of many years of long term, difficult, and often second guessed roster decisions. As I listened to him speak, I recalled reading a book several years ago called Moneyball, in which former Wall Streeter Michael Lewis compares managing a baseball team to managing an investment portfolio. Shortly after I read that book, I also happened to attend a dinner with Paul De Podesta who was Assistant General Manager of the Oakland A’s at the time. Paul was a leader in introducing a far more statistical approach to the actual operations of a baseball team. While I’m not convinced that the parallels to the investment business are exact, the similarities are a lot closer than most would think.
One of the most difficult decisions Jeff and I have to make as portfolio managers is when to sell a stock. It is difficult, because in doing so, we must admit to poor judgments in the past or at the very least, changed circumstances. With this question in mind, I raised my hand and asked Shapiro how he could tell the difference between a short term slump in a player's performance versus a more questionable longer term flaw. He answered that he always goes back to his process by first taking a look at whether or not the original reasons for hiring a player still stand. While admitting that the decisions aren’t science, he considers all the fundamentals of baseball, including the player’s competence and character, and balances these against the economics of the team and its overall portfolio.
With an answer like that, I went home and tried to convince Pete that Shapiro and I really had the same job, but he just didn’t buy it. He was far more interested in what would happen with C.C. Sabathia next year and whether or not the Indians would be able to keep him. (Incidentally, Pete was disappointed when C.C. won the American League Cy Young award, telling me that it would only push up his market value and make it more difficult for the Indians to keep him.) To the question of C.C., Shapiro answered – poker face on – that Sabathia had a very difficult decision to make; whether or not he would provide for the next four or five generations of Sabathia’s or merely the next three.