That queasy feeling in my stomach has returned. The Red Sox are playing the Yankees again for the American League championship, and the night sweats, indigestion, and high anxiety are back.
I have made boneheaded investment decisions. I rode Cisco (NASDAQ:CSCO) from $80 all the way down to $24. I am the only person in America to sell Starbucks (NASDAQ:SBUX) at a loss. I have stood on the sidelines while hot properties such as Amazon.com (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) had double-digit returns -- every day during the bull run.
You can blame me for this. That's fine. I am responsible for my own actions. But I could do nothing about my birthright. I grew up in Massachusetts, heir to Boston Red Sox fan misery.
One year ago, the Sox suffered what would have been an unfathomable collapse to the Yankees in the seventh game of the League Championship Series -- except for one thing. They were the Red Sox, and if you study trends and history, you should have seen it coming. World championships since 1918? Yankees 26. Red Sox 0. The only thing the Red Sox have outpaced the Yankees at in the last 86 years is heartbroken fans.
If I charted stocks or the stars, I would be shorting the Red Sox right about now. Surely there are patterns one can find as the Sox continually rise up only to fall flat on their faces -- look at 1978, 1986, and 2003 as just the most poignant losses to New York teams.
Unfortunately, I'm not smart enough to be a technical analyst. And if you look at these Red Sox from a fundamental perspective, they look like a stock poised to take off.
First-mover status
Despite the Alex Rodriguez fiasco, the Sox moved first against the Yankees last off-season. They plugged the holes that kept them five outs away from beating the Yankees last year. They got the best starting pitcher -- and a Yankee killer -- available on the market in Curt Schilling. They got the best closer available in Keith Foulke.
They also got a new manager who presumably would have enough sense to take Pedro Martinez out of a close game after he's thrown 100 pitches and tires beyond effectiveness (this was not proved out during the regular season, but hopefully Terry Francona has learned his lesson in time for the playoffs).
Increased funding for research and development
Since new ownership and super-boy general manager Theo Epstein took over, the Red Sox have proven they are not satisfied with the status quo. Rather than swing for the fences and hope for the best, as they've done for years, they've been committed to statistical analysis to make the team better, hiring gurus like baseball statistician Bill James and enthusiastically following some of the precepts adhered to by Oakland A's GM Billy Beane -- like a steadfast focus on on-base percentage.
Beane was made famous in Michael Lewis' book, Moneyball. Tom Gardner recently did an excellent interview with the author, which you can get gratis by taking a free trial to Motley Fool Hidden Gems. (I highly recommend the book and the interview, and Tom Gardner's stock picks, too).
Taken to the extreme, Beane's philosophy involves signing unathletic fat guys who can't run or field but can hit and take a lot of walks and come cheap. It's a great way to exploit inefficiencies in the market. It's the same kind of thing we do in Motley Fool Inside Value (also available with a free trial). Buy the ugly stepchild whom no one wanted on their team; he could grow up to become Mr. Clutch.
Epstein has not taken it quite as far as Beane, but he's had some great pickups like Mark Bellhorn, who struck out 177 times this year but walked 88 times and hit 17 home runs with a .373 on-base percentage. Another walking machine, featured prominently in Moneyball, was mid-summer call-up Kevin Youkilis, who filled in admirably at third base while Bill Mueller was on the disabled list. (For more on Moneyball, see this fine column from Zeke Ashton).
In general, though, this team has adopted a playing style that makes opposing pitchers work hard. Sox batters are patient. They take a lot of pitches. They grind down the starters they face so that they can get into the other teams' bullpens more quickly, which usually leads to good hitters facing weaker pitchers.
Valuation
It's tough to say the Sox have really searched for bargains given that their payroll is some $130 million, the second-highest in baseball only to the Yankees' $180 million. But still, they paid $1.3 million per win vs. the $1.8 million per win the Yankees paid.
Sure, the Sox have a salary albatross around their necks in Manny Ramirez (though we love Manny this year!) at $20.4 million. But they also nailed down David Ortiz ($4.6 million this year) to an extended contract, and he's proceeded to do nothing but club 41 home runs and drive in 139 runs.
The aforementioned Bellhorn is only making $490,000. Gabe Kapler, who played 136 games in the outfield while Trot Nixon was hurt, cost them only $750,000. Bill Mueller is only making $2.1 million. Pokey Reese, who was the opening-day second baseman, makes just $1 million (yes, I do feel stupid saying anyone makes "just" $1 million).
Compare that with the Yankees one through nine. Second baseman Miguel Cairo is the only one without a multimillion-dollar contract (he's making about $900,000 this year).
So the Red Sox have not been afraid to make bets in value plays, and they have really gotten their money's worth.
Outstanding, emotionless management
The Sox have also benefited from some of the best front-office management in baseball. While he is one of the youngest GMs in the history of professional sports, Theo Epstein has proven to be a wily negotiator who does not give in to his emotions. He's the ultimate stoic Sox fan, and he proved it this summer when he sent New England icon Nomar Garciaparra to the Cubs and got two outstanding defensive players in return -- shortstop Orlando Cabrera and first baseman Doug Mientkiewicz.
Talk about being contrarian. Talk about being a Rule Breaker. This deal made young Theo the bogeyman for a few weeks, with fans threatening him and kids crying over the loss of their hero. But he persevered, and the Sox have thrived since that deal. With the oft-injured and sullen Garciaparra gone, the Sox clubhouse got a monkey off its back, and the defense went from giving up an unconscionable amount of unearned runs to one of the best in the league.
This is exactly the type of management you want in the companies you're investing in. You don't want anyone who manages with a sentimental streak. In fact, you don't want to be a sentimental investor. Period. Don't be afraid to swim against the currents. You can't hang on to your losers just because you like their products or because they once made you money. If their time is past, cut them loose. Be ruthless.
Don't rely on just one product
How many companies out there have had one hot product and then hit the bricks when the marketplace changed? Think Iomega (NYSE:IOM). That has been the Red Sox over the last six years, with only one ace pitcher, Pedro Martinez, on the staff.
But now they have Schilling, who entered this postseason with a 1.66 lifetime ERA in the playoffs.
And if Pedro Martinez can remember who he is -- that just a few years ago he was everybody's daddy -- the Sox have a one-two punch unlike anything since Schilling and Randy Johnson did in the Yankees for Arizona in 2001. Schilling was the co-MVP of that World Series. This man is no stranger to postseason pressure.
Pedro did falter down the stretch in September -- uttering the now infamous remark that the Yankees were his "daddy" and that they had his number after yet another heart-wrenching loss in which the manager left him in too long. But he rebounded nicely in round one against Anaheim last week, and he has a lot to prove, which should fire him up. Ex-Sox manager Grady Little's mistake for leaving him in too long aside, Pedro has had last season's Game 7 loss to the Yankees hanging over his head for a year now. He's got to be pitching for revenge. He's also pitching for a contract -- he's a free agent next year. Money is always a motivating factor.
If Francona is smart enough to take Pedro out after 100 pitches, I would not bet against him.
Exploit your opponent's weaknesses
Microsoft (NASDAQ:MSFT) has never made the best products, but it has made the most of its chances. Its eye-of-the-tiger opportunism has always eaten Apple's (NASDAQ:AAPL) lunch. No matter what you think of the Redmond giant, you have to give it some credit. Whenever it has smelled weakness, it has stepped on the necks of its opponents and never let them up.
Such has been the case for the Yankees, who have kept the Red Sox at bay for 86 years. The Sox too often played a stodgy type of baseball thanks to stodgy management that couldn't think outside the box. That has changed now. And while Red Sox management has become stronger off the field, the Yankees have been become weaker on the field.
Yes, they have a Murderers' Row type of lineup. But their starting pitching is not what it has been over the last several years. Gone is Clemens, Wells, and Pettitte. Instead they have a volatile and brittle Kevin Brown, an untested Javier Vazquez, a clutch but injured Orlando Hernandez, a John Lieber who pitched well down the stretch but doesn't exactly strike the fear of God in anyone, and a Mike Mussina who has crumbled under big-game pressure and is coming off a season in which his ERA was a full run over his career standard.
If ever there was an opportunity to exploit a Yankees' weakness, it is now. Mariano Rivera can't pitch three innings a game. And the Sox have already beaten him twice this year.
The hottest stock in Boston
All this puts the Red Sox in the best position to beat the Yankees since Babe Ruth helped win Boston's latest championship in 1918. (By the way, they were not always the Red Flops. Boston won world championships in 1903, 1904, 1912, 1915, 1916, and 1918 -- they dominated early-20th century baseball).
Always the conflicted Red Sox fan, I'll say this, too: It could be now or never. If they can't get it done this year, I really will have to start believing in curses because I'm out of other excuses.
Here's my prediction. I predict panic attacks, nosebleeds, skin rashes, sleeplessness, weight loss, and the Red Sox in seven. For the good of my health, I'm just praying for no extra-inning games. Aaron Boone is not on the Yankees' roster, right? Bucky Dent? He's long retired, right? Miguel Cairo, Red Sox killer? Naw.
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Bob Bobala is the editor-in-chief of The Motley Fool. He owns none of the securities mentioned in this article. The Fool is Red Sox fans writing for Red Sox fans... er, we mean investors writing for investors.
