• John Hawver

Five for Fighting

I’m a hockey nut and I love relating sports statistics to investment approaches. I help coach a U14 (Bantam) boys team. These skaters are just learning to check and take checks, so the rate of penalties tends to be high when they enter Bantams. Plus, these boys are just starting to get big, they want to hit and bang around; what else would boys want to do when you put them in pads, give them big sticks, and tell them they can hit each other?


Of course, all that checking tends to result in penalties when the skaters are just learning, and that makes coaching them to a win reasonably challenging.


Penalties in hockey are largely errors of commission, errors of choice. At the Bantam level, most penalties are the result of checks, either bad checks or retaliation for getting checked. So this year I took a different approach to teaching the team about checking; Instead of focusing on the techniques, I focused on the penalties. And not just the penalties, but what those penalties “cost.”


Statistics at the Tier 2 level of hockey are hard to come by, so I pulled some data from the 2018-2019 NHL season. It turns out that if you compare the penalty minute differential to the goal per game differential, there’s a reasonably high correlation (.232 adj.R2); the best teams simply have fewer penalty minutes than their opponents. Every two minutes of penalty differential results in about half (.5) of a goal. Now, that regression is weighted by some outliers, and is only based on one season, so, we should probably shade that a bit. The average NHL power play conversion ratio is 19%, so every 2 min penalty is worth about .2 goals. But the point still stands, penalties hurt, and they especially hurt when you play the best teams.


At the Bantam level the statistics are quite a bit fuzzier since the numbers aren’t nearly as clean. The power play conversion rate is higher, at around 35%, so each penalty is roughly worth a third of a goal.


I put it simply to the skaters: Checking causes most of our penalties. Each penalty we have more than our opponent costs us about a third of a goal. You (the skaters) control 3 things on the ice: How hard you work, how smart you play, and how you react to what happens out there. Penalties are in your control. And if you can control penalties, it is “worth” real goals and real wins.


Once they realized this (and it took some repetition) and its importance, penalties plummeted and our win percentage rose accordingly.


Investing and trading is really no different. Mistake avoidance can dramatically improve results; I learned this over and over as a quantitative trader. That message has also been communicated by Warren Buffett in a few different ways. He speaks consistently about only making a few very well researched investment choices; waiting for the fat pitch. He also relentlessly talks about staying in his “circle of competence.” And he’s referenced Ted Williams excellent book, “The Science of Hitting.”


For me, seeing the numbers, experiencing this on the ice, and seeing my results as a trader and investor have really driven home this point. Avoiding mistakes is well within our control as investors, becoming Warren Buffett or Seth Klarman probably is not.


So, taking the time to figure out what your own personal investment weaknesses are and consciously avoiding them, pays off.


Here are the top 10 mistakes I’ve made:

1. Over-trading

2. Following the crowd

3. Buying expensive assets

4. Not asking enough questions

5. Listening to my barber and other "experts"

6. Extrapolating short-term results to the long-term

7. Ignoring book value

8. Not having a plan

9. Selling due to fear; Buying out of greed.

10. Ignoring asset allocation


Final note, AQR's paper: “Pulling the Goalie: Hockey and Investment Implications” makes some very similar points. Mr Asness must also be a hockey nut.



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