Trend Following, 5th Edition

5 Thinking Outside the Box

How to hit home runs: I swing as hard as I can, and I try to swing right through the ball . . . The harder you grip the bat, the more you can swing it through the ball, and the farther the ball will go. I swing big, with everything I’ve got. I hit big or I miss big. I like to live as big as I can.

—Babe Ruth

What is striking is that the leading thinkers across varied fields—including horse betting, casino gambling, and investing—all emphasize the same point. We call it the Babe Ruth effect: even though Ruth struck out a lot, he was one of baseball’s greatest hitters.

—Michael J. Mauboussin¹

Lenny [Dykstra] didn’t let his mind mess him up. . . . Only a psychological freak could approach a 100-mph fastball aimed not all that far from his head with total confidence. “Lenny was so perfectly designed, emotionally, to play the game of baseball. . . . He was able to instantly forget any failure and draw strength from every success. He had no concept of failure.”

Moneyball²

Since the first edition of Trend Following, sports analytics has exploded. In the last decade professional sports have undergone a remodeling, with teams scrambling to change strategies to accommodate untold new trends in statistical analysis. There haven’t necessarily been major rule changes, nor have there been any substantial changes to the venues or the equipment. Instead, the renaissance is rooted in an unconventional process known as sabermetrics.³

Today, every major professional ...