Jim Abbott and the Wall of Worry
Regular readers of “A Dash” are familiar with our loyalty to the University of Michigan and also our notion that sports can provide valuable insights for investments. Here is a good example.
Truth is stranger than fiction. Who would think that a person missing the fingers on one hand could be a successful big-league pitcher?
Jim Abbott is the implausible hero. This weekend his number “31” will be retired by the Wolverines.
When Abbott was still in grade school, one opposing coach ordered
his batter to bunt, forcing Abbott to field the ball. Abbott pitched
with his glove resting on his right hand. After he released the ball,
he slipped his left hand into the glove, fielded the ball, then
performed a nifty maneuver where he’d stick the glove under his right
arm, let the ball fall into his left hand, and throw it to first base.
“I don’t ever remember it being something I had to master,” he says.
“It was just something I did.” He made the play as smoothly as a
magician pulling a nickel out of your ear. One down.
Thinking it was a fluke, the coach ordered the next batter to
bunt—and the next. Finally, after six batters had bunted, and Abbott
threw all six out and the coach called off the experiment—making the
coach the only embarrassed person in the park.
Abbott’s career included the following highlights:
- Winning the 1988 Gold Medal Olympic game against heavily-favored Japan.
- Vaulting directly to the major leagues, one of a handful of players to skip the minors.
- An 18-11 record and a 2.89 ERA in his third year in the majors.
- A no-hitter in 1993.
- Providing an inspiration to handicapped kids everywhere.
We see Abbott as a symbol of the Wall of Worry — the current market condition. In January we wrote the following:
We expect that market skepticism will be a “wall of worry” and that
market gains will require actual evidence of improvement in housing,
the economy, and corporate earnings. The market will anticipate
improvement, but some evidence is needed.
There are many economic problems — all well noted and discussed by many (including us). Most observers seem to believe that this means that markets should always move lower, with no particular destination in sight. The skeptics tell us to ignore any evidence to the contrary. Consider some examples.
- Wells Fargo pre-announces good earnings. The punditry rushes to tell us how wrong this is. Check out Tom Brown for some detailed analysis of the critics.
- Goldman pre-announces good earnings. The punditry rushes to tell us about the “hidden month” as they shifted, as expected for their new role as a bank holding company, to a calendar year. Writing about this shift generated a lot of page views, but those looking ahead might have a better grasp of the earnings potential.
- Intel announced good revenues and earnings, and suggested that there was a bottom in the PC market. Pundits complained and the market weighed to the sell side. Why? The company did not give “hot” guidance. Is this a surprise? Companies will remain cautious in guidance until well beyond the economic turn.
- The stimulus will not work, say the political critics. They are confident about this even before they see any data.
- The PPIP will not work, say the pundits. They are confident before the participants are even announced.
- Anyone who booked the 20% gain in the last month has enjoyed a “sucker’s rally.” If you Google this term you will see 500,000 hits, all telling you how stupid you were.
We have no illusion that every story will turn out to be wonderful. Our own position has varied both with economic events and the tape. Over the last several weeks there have been many positive signs and we have identified many profitable sectors.
The media and the blogosphere remain skeptical of any positive news. This is the definition of the Wall of Worry. The average front page at Seeking Alpha has a rash of featured bearish bloggers. The links from Abnormal Returns now include many sassy skeptics. The comments everywhere tilt heavily bearish.
It is like Jim Abbott’s opposing coach in Little League. It seems implausible. It is how sustained market advances occur — one step at a time, with setbacks. Each new piece of evidence is greeted with skepticism. It may take several good plays in a row before the many skeptics get on board.
(Full Disclosure: Long INTC and GS)