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The Ratio Man And Investing In Your Bench
If you are immediately wondering what baseball has to do with investing, don’t worry, I’ll get to my “growing as an investor” ramble in a second. First, let’s talk about sports as an analogy that bleeds into that moment.
Have you ever heard of Oscar Gamble?
In 2014, Bill James wrote an article covering his analysis of the best ever players coming off the bench in baseball. If you are not a sports fanatic, the bench consists of the players that back up the starting player lineup.
Bill concluded that Oscar Gamble’s “coming off the bench” performance in 1979 was the best of all time (as of 2014). Oscar was an outfielder and designated hitter while in the major leagues between 1969 and 1985, a span during which he played for seven different teams.
He earned the nickname “Ratio Man,” slamming 200 home runs in just over 4500 at bats. In 1979, with the White Sox, he hit 31 home runs or one per 13.2 at-bats! That is absolutely crazy! Imagine having that type of multibagger stock hit ratio over your lifetime.
Here is what Bill James said about the Ratio Man:
“According to this process, the greatest bench season ever was by Oscar Gamble in 1979. I’m actually 100% happy with that answer; I don’t have any problem with it at all. Playing for two teams, Gamble in 1979 hit .358 with 19 homers, 64 RBI in 270 at bats. With a terrific strikeout to walk ratio as well (28 strikeouts, 50 walks), Gamble had on base and slugging percentages in Ted Williams/Barry Bonds/Babe Ruth territory, .456 and .609. This wasn’t done in the steroid era or the 1890s, and it wasn’t done in Coors Field or the Baker Bowl, and he wasn’t “really” a regular who slipped under the radar, and he wasn’t a one-year fluke like Showboat Fisher in 1930 or Chris Duncan in 2006; it is absolutely legit on every front.”
Switching gears to football, If you play fantasy football, you are well aware of what the bench is and the tough decisions you need to make from week to week when setting your starting line-up.
There is no worse feeling than losing a playoff spot resulting from your decision to leave an average player on the bench that outperformed your starters, like Tom Brady or Patrick Mahomes.
But if you are in a legacy league that allows you to keep a certain number of players from year to year, that feeling will be dwarfed by the regret of not taking the chance to drop one of your legacy stars to make room for new players who could be the next great player that everyone else wished they had on their team. Even Tom Brady was a backup at one time, as were Ben Roethlisberger, Eli Manning, Drew Brees and Dak Prescott, who all showed greatness early in their careers and went on to shape the history of football in their own ways. Take a look back at the top 25 single-game backup performances in history, and you will see even more names you recognize.
None of us have a crystal ball of course, and it’s easy to overthink the myriad of scenarios that roster revisions can result in, like a situation in which you “outsmart” yourself and sit Mahomes because your average “Joe” bench quarterback had a “better” match up…so you start Joe and he performs…well, like the average player that he is.
Even more frustrating is when you lose because most of your bench outperforms your starters in a playoff game.
I think you know where I am going with this.
Your Portfolio’s Bench
If you are like me, when it comes to investing you might have your top 5 starters, and then a bunch of positions where the conviction may not be as high, and then your bench that you still want to watch.
Unfortunately, we all probably also experienced our bench positions outperforming our large “starting five” lineup or where your smaller positions do not come close to offsetting losses of your larger starting positions.
Position sizing is one of the hardest aspects of investing. Some of my biggest wins were once-average-conviction stocks that turned into big position stocks over time. Conversely, I’ve had some high conviction stocks where things went terribly wrong.
And even if you are right, you could be wrong on timing and have to weigh the opportunity cost of not switching out some of the stocks you own for other stocks in your pipeline. Was it really a win for me when I waited for Koru Medical Systems, Inc. (NASDAQ:KRMD) to move from 8 cents in early 2008 to $12.84 in 2020, especially when you consider the bulk of that move happened from January 2018.
KRMD was a tiny low conviction, a “let’s see what happens position” when I first bought it in 2007/08 under 10 cents, which I added to along the way over its 13-year 15,900% multibagger run.
I am obviously ok with how it played out. However, I am not sure if I would have felt the same way had I made a high conviction bet right out of the gates, waiting 13 years for it to play out and not having funds to buy other stocks to produce short-term cash flow – a necessity as a full-time investor.
This opportunity cost dilemma is part of what makes investing hard, especially in the microcap spectrum, where undervalued stock prices can be uncorrelated to the market and their fundamentals for longer than you want to tolerate, or where business plans just don’t keep their momentum, and your investment ends up being a waste of time.
BOPs
Geoinvesting’s BOP Model Portfolio #11 illustrates some of these points.
In January 2026, we launched our Buy On Pullback GeoInvesting Model portfolio (BOP) strategy. We normally add 4 to 7 “unjustly punished” stocks to the BOP that we believe should bounce back within days to about 9 months. At least that is what we aim for. The first step we take when creating a BOP is to identify candidates for potential inclusion in the portfolio.
We opened BOP #11 on September 25, 2023, adding the seventh and last stock from the bench on November 27.
So far, it’s been a great ride with the 3 top-performing stocks carrying current returns of 98.8%, 54.0% and 27.4%.
However, we left 6 stocks on the bench that, at their highs, performed remarkably well. One, at its peak return of 114.7%, beat all 7 starters, and two of those on the bench bettered all but the top stock in the starting lineup.
- Csp Inc. (NASDAQ:CSPI) (114.7% peak return) – Third party Information Technology Solutions (recently launched a proprietary cyber security product).
- Semler Scientific, Inc. (NASDAQ:SMLR) (95.9% peak return) – Medical Device to test for the risk pulmonary artery disease (PAD).
Luckily, BOP #11 is currently posting an average return of 28.77% (including 5 open and 2 closed positions), beating the bench by 17%, which stands at an 11.77% return, and the S&P 500 by 7.73%, which stands at a 21.14% gain since 9/25/2023. So, overall, it looks like we made the right decisions.
Don’t get lazy or complacent as an investor
There is an important take away from all this. Admittedly, because BOP #11 was performing nicely out of the gates, we didn’t pay close enough attention to the bench. However, we should’ve kept analyzing the bench on a more frequent basis. So, the real lesson here is when you’re making a research pipeline stock list, don’t ignore your bench. You put them there for a reason. Monitor the developments to see if things have changed for better or for worse.
In the case of CSPI, we would’ve noticed some important information arbitrage developments the company was talking about in its earnings call transcripts regarding Ai initiatives and exploring a partnership with Nvidia Corporation (NASDAQ:NVDA).
Then, a Form 4 was filed showing the CEO bought some stock around $30, pre 2 for 1 stock split (when the stock didn’t move up in reaction to its earnings release)
This is a great example of when an earnings call offered much more color on a mediocre quarterly performance portrayed by the press release.
By the way, if you still haven’t seen how our 10 previous BOPs did and their start to finish timeframes, we’d like to remind you:
The BOP is the perfect strategy for the misunderstood and underfollowed microcap space, and has been GeoInvesting’s most consistent top performing model portfolio. If you are interested in learning more about the strategy, please watch this webinar
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GeoInvesting Weekly Premium Email And Call To Action Updates (Mar. 25 – Mar. 29)
Call to Action
- PPSI – Removing from buy on pullback model portfolio.
Morning Email Highlights
- .TSSI: Diving into business segments and some types of data centers.
- CCEL: Spinoff becomes official.
- AMNF: Announces increase in regular dividend and announces a small special dividend.
- BKTI: GeoInvesting Contributor Scott Weis Thesis Update – maintains his bullish stance and 160% upside.
- IRIX – InfoArb surrounding strategic review process
- TSSI – Updated research on bullish trends we see.
- HMDPF – Continues to report strong numbers and hit new highs; comps are more challenging now.
- TAYD – Reports record quarterly top and bottom line results
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Premium Emails Sent During The Week
03/25/2024
Stocks : TSSI, BKTI, CCEL, AMNF
Highlights TSSI: Diving into business segments and some types of data centers. CCEL: Spinoff becomes official. AMNF: Announces increase in regular dividend and announces a small special dividend. BKTI: GeoInvesting Contributor Scott Weis Thesis Update – maintains his bullish stance and 160% upside. – PodClip On TSSI Data Center Application Update As a data center facilities and technology services company Tss Inc (OOTC:TSSI) continued to…see more.
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03/27/2024
IRIX InfoArb On Strategic Review Process
Stocks : IRIX
Iridex Corporation (NASDAQ:IRIX)($2.76 $44.8M market cap announced Q4 2023 results. Sales of $12.5 million vs $15.2 million in the prior year and missed analyst estimates of $14.9 million Net loss of $0.18 vs loss of $0.07 in the prior year and missed analyst estimates of a loss of $0.05 Despite the poor quarterly results, there were some interesting takeaways…see more.
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03/28/2024
PPSI Call To Action; HMDPF and TAYD Earnings Recaps; Reviewing TSSI’s Current Initiatives
Stocks : PPSI, TSSI, TAYD, HMDPF
Highlights PPSI – Removing from buy on pullback model portfolio. TSSI – Updated research on bullish trends we see. HMDPF – Continues to report strong numbers and hit new highs; comps are more challenging now. TAYD – Reports record quarterly top and bottom line results. – **Call To Action Removing PPSI From Buy On Pullback Model Portfolio #11 In…see more.
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