Streaks and Slumps

As all tennis fans know, the most dominant player in tennis, Roger Federer, lost yesterday in the first round at the Dubai Tennis Championships. Just last year he was unstoppable, winning three Grand Slam titles. Now with the recent loss last month in the Australian Open semifinals and this unimaginable first round loss, many critics proclaim that Federer is in a slump. How the tides have turned. This is testament to the yin and yang balance discussed earlier in Yin Yang Markets.

To some extent, I am sure that we have all experienced or at least witnessed the phenomenon of slumps and streaks. Whether it is in sports, gambling or stocks trading, steaks and slumps seem to come into play whenever performance is involved. What I want to discuss in this post is that in reality, there are no such things as streaks and slumps, just probability. Almost all perceived streaks and slumps, with a few outstanding exceptions, are within the realm of inherent probabilities. For example, if a baseball hitter has a .300 lifetime batting average, but in one season had a 40 game hitting streak. His chances of hitting the ball will seem to be higher than average to both himself and observers during this "extraordinary" streak but if you study his lifetime hitting statistics, you will see that there is no evidence that points to a higher probability to hitting the ball. So even though he was "on fire", he was still only performing within his normal chances.

So why do people usually attribute streaks/slumps with an enhanced probability for success/failure, respectively, when in fact both streaks and slumps can be explained within the normal probabilities? Well, people are natural pattern seekers. We can look at things that are random or meaningless and rationalize some sort of pattern or meaning. Also, clusters of similar outcomes that seemingly defy probability tend to capture our attention, forcing our mind to rationalize such a deviation from the norm. (Imagine 30 coin tosses, where the first 15 tosses land on heads and the second 15 tosses land on tails. If you were only shown the first 15 tosses, you would probably feel that the chance of hitting heads on this coin is higher than 50% and that maybe it is a trick coin. This perceived increase in probability is what causes people to believe in players being "in the zone", "on fire" and "unstoppable". )

The difference between coin toss results and a baseball player's batting average is that batting average is dependent on skill. Skill varies from person to person but the more skillful you are the higher your chances of succeeding in what you attempt to do. Although not impossible, it is rare to see win streaks from bad teams or hit streaks from poor hitters. What you usually see is good teams going on long win streaks (2007 New England Patriots) and star players (Michael Jordan) being "on fire". Those who are at the top of their profession or sport have above average probability for success leading to increased chances of producing streaks. Stephen Jay Gould explained long streaks as "a matter of extraordinary luck imposed on great skill".

I know of many people, including myself, that have been in streaks and slumps. During streaks, everything is great but complacency and overconfidence sets in because one perceives a higher chance of succeeding. This is especially prevalent in gambling, when someone, after winning a few successive hands, feels that they have a higher chance of winning even though all casino games have fixed win/lose probabilities. This overconfidence is what causes most winners to give their winnings and more back to the casino. As for slumps, most people I know always try to place blame on others, their routines and/or their strategies. This leads to frequent unnecessary overhauls and changes that can further lead to sub par results (good golf players "tweaking" their swing after a short series of bad hits). Don't get me wrong, it is always good to evaluate and improve, but to make big changes in technique and strategy after a small slump may be "throwing the baby out with the bath water". Also in most cases, only time is needed to let probabilities run its course.

So next time you're in a streak or slump, just know that you are still operating within your normal chances of success/failure and overconfidence or despair is unwarranted. As mentioned, skill is a factor in determining your "normal chances", so improving your skills is a necessity if you want to have "streaks" of success. Many top players (Tiger Woods, Alex Rodriguez and Roger Federer) have experienced both streaks and slumps but they eventually always come back to win because probability is on their side. Thomas Jefferson once said "I find that the harder I work, the more luck I seem to have".

So if you want to get lucky, you know what you have to do.

Luck => Success. Hard Work => Luck. Hard Work => Success.

As always, feel free to comment below!

Recommended Reading: Confidence: How Winning Streaks and Losing Streaks Begin and End by Rosabeth Moss Kanter, A Random Walk Down Wall Street by Burton G. Malkiel