Welcome back blog and book readers, this week’s installment of my book club features Trading Bases by Joe Peta. The book is about a Wall Street hedge fund manager who develops a model to bet on baseball games. I love baseball analytics, I love sports gambling, and I love learning about investment banking. Combine all three of those aspects and this shot to the top of my list once I heard about it.

The book introduces the author Joe Peta as an investment banker in New York city who loves sports. It was a cool background of how he got into the hedge fund world, and he did a really good job of explaining it in a way that the common reader could understand. There was a ton of risk management discussion, and Peta makes it clear how he felt about many practices within the industry – this was written in 2012 so the 2008 market crash was still fresh. This transitions to discussion of office betting pools and how Peta took the lead in organizing and making the market for these things, eventually expanding to a continental gambling pool between investment bankers.

After an accident, he is immobilized while rehabbing and takes an interest in betting on baseball. Particularly, the over/under win totals posted in Vegas. Peta started working an office pool where the guys on the floor were essentially trading win totals throughout the season based on how the teams were performing. This led to Peta creating a model for individual games, focused on finding the highest win probability weighted against the money line juice. Peta goes heavily into the analytics he used and explains why certain games carried such an advantage over other. It’s a season long breakdown that ends with his fund up over 40% from their original bankroll.

So how was it? I think If I read this book 10 years ago it would be revolutionary in the way that I understood both baseball and gambling. Stats like SIERA, xFIP and ISO would have been a foreign language to me and would have been so groundbreaking. The gambling explanations would have been a huge insight into a hobby that was cool but out of reach for many. However, back in 2014 I got really into learning about analytics and what it meant for predicting baseball results. The stats Peta used are still in practice today, and at the time he wrote this were the premier analytics to use. However, baseball models have advanced to such a level that the questions Peta couldn’t figure out have been answered – specifically with player projections. Still though, it was cool to see him explain the process behind Baseball Reference’s original PECOTA projections and seeing many of Bill James’ ideas slowly integrated into baseball front offices. That part aged very well.

He also did a great job of explaining gambling and how his hedge fund principles were applied. Back in 2015 I got set up with an offshore bookie and got my training through trial by fire. Thankfully when the hole got too big, I’d just cancel the card and block the email address. Maybe they’ll get me someday. One of my core principles is never hedge. Yes, hedging will guarantee you a profit. But it takes all the fun out of it. I’m aware that if you can guarantee a $10 profit on each bet, you’ll end up big at the end of the year. A common phrase in this book was “Warren Buffet would rather have a bumpy 15% year opposed to a 12% straight gain year”. I don’t agree with Peta, gambling is about winning and there’s no fun when there is no risk. Peta gave everyone here a blueprint to an actual model that would result in success, but I think 99% of gamblers are either unwilling or unable to follow it.

Overall, this was a fun book to read, I just read it 10 years too late. I have a ton of respect for gamblers and baseball fans alike that were able to pioneer predictive performance evaluations and I would never have the patience to test this out. A lot of this reads to me as a reminder, rather than an instruction. I learned a lot about how investment banking during the .com boom was done, I have added a few more books to the list to learn more about it. I recently read Red Notice, which was authored by another banker at Lehman Brothers, the same firm Peta worked at. They went bankrupt after the real estate crash and were acquired by Barclays, but I bet the stories from their peak are just insane. My score here is 3.5/5.0

Thanks for reading and catch you next week. I’m reading The Mastermind which is excellent, and I look forward to blogging it.