I had the great privilege to attend the French Open at Roland Garros on June 4th. We saw two women’s matches and one men’s match involving Novak Djokovic. This was the first time I saw Djokovic play in person, so I was really happy we had tickets on the day he was playing on center court.
Djokovic is 36 and he played 23 year old Spaniard Alejandro Davidovich Fokina. Although Djokovic won in straight sets, it was an incredible battle and a delight to watch. Djokovic won the first two sets in tie breaks, and it took 2 hours and 40 minutes to complete those two sets. Afterward, Djokovic said that he could not remember ever playing two sets that lasted that long and thought there was a distinct possibility that the match could go five hours. Djokovic thought the first two sets lasted three hours, but that goes to show the difference between experience and memory. I definitely made a mental note of the time after the second set, but for Djokovic, it felt like three hours, and that’s how he remembered it.
As an aside, I encourage you to watch this video of Djokovic being greeted by his kids after finishing one of his matches. It’s very heartwarming.
When he spoke to the crowd after the match and mentioned that he thought the match might go five hours, he said that comes with the territory when you compete in Grand Slams (U.S. Open, Wimbledon, Australian Open, and French Open) because those are the only tournaments that require the winner to win three sets versus two so there may be a maximum of five sets versus three for all other tournaments. This got me thinking about the importance of preparing for high-consequence, stressful situations. For example, in looking at Roger Federer’s statistics, roughly 30% of his matches took place during Grand Slam events while the other 70% were in tournaments which were the best of three. Because Slams are so important from an achievement, legacy, satisfaction, and monetary standpoint, they are understandably what so many players train for and for which they prepare. As a result, they have to be prepared to handle stressful situations even though they will be 30% of the time at most.
Interestingly, in doing some research for this post, I came across an article in the New York Times from 2011 discussing how much more physically challenging the game had become because of the incredible speed increase in players’ groundstrokes and serves.
“Back 20 years ago, a hard-hit ground stroke might have been 60 to 70 m.p.h. for the men, but now a hard-hit ground stroke is 90 to 100 m.p.h.,” Levin said, adding that the women’s groundstrokes have made just as big a leap, going to 80 to 90 m.p.h., from 50 to 60 m.p.h. “When you look at the percentage of difference, it’s really amazing.”
He said players now can return shots that would have been winners in the past because they can generate pace and spin with their high-tech rackets — and with a flick of the wrist or when they are slightly out of position, which was not necessarily the case 10 years ago.
“They are playing longer points, and the number of shots per point has suddenly gotten much longer, which makes a match so much harder on a player,” Levin said. “Now they are having to work harder on every single point, and that takes a toll.”
And given the injury challenges Rafa Nadal has been facing over the last year and recently announcing that 2024 will almost certainly be his last year at age 37 and 38, I found this segment about him to be quite fascinating.
Nadal grumbled about “the speed of the ball” when asked why the game has become so taxing. He said it would not help much that the ATP Tour will be two weeks shorter next year because the game will be faster and players advancing far into each tournament will have to suffer through it.
“Because of it, we will all have to retire when we are young,” said Nadal, 25, who has battled nagging knee injuries.
I was particularly curious if the match we saw was unusual in terms of its average rally length or whether it was just my impression. From following tennis statistics, I knew that roughly 70% of all points end with four shots or less. Because clay is a slower surface, perhaps the long rallies in the Djokovic match were not that unusual. It turns out that someone looked at rally length at Roland Garros versus the U.S.Open and was surprised to learn that they were very similar.
I love studying numbers, analyzing them statistically, and seeing if any patterns can be derived and hypotheses tested. It turns out that the Roland Garros app had a motherlode of stats that I could put into a spreadsheet to test my hypothesis that the average rally length, excluding aces and double faults, was materially higher than average. And while many people love to go to museums and shop in Paris, I was in heaven gathering numbers to put in a spreadsheet.
I put a number of matches into the spreadsheet and came up with the number of rally shots and average rally shots per point for each match. This table shows the results with the match I saw at the top.
| Round | Rally Shots | Shots per
Rally |
|
| Djokovic | 3 | 1274 | 5.74 |
| Djokovic | 4 | 674 | 5.22 |
| Ruud | 1 | 730 | 5.03 |
| Zverev | 3 | 1266 | 4.99 |
| Tsisipas | 3 | 770 | 4.94 |
| Alcarez | 2 | 814 | 4.87 |
| Djokovic | 2 | 897 | 4.82 |
| Zverev | 2 | 698 | 4.65 |
| Zverev | 4 | 724 | 4.58 |
| Tsisipas | 2 | 742 | 4.50 |
| Rune | 3 | 647 | 4.37 |
| Ruud | 5 | 882 | 4.34 |
| Djokovic | 5 | 1019 | 4.30 |
| Alcarez | 3 | 661 | 4.24 |
| Djokovic | 1 | 688 | 4.22 |
| Alcarez | 4 | 626 | 4.17 |
| Ruud | 2 | 961 | 4.16 |
| Ruud | 3 | 823 | 4.16 |
| Alcarez | 1 | 597 | 3.98 |
| Ruud | 4 | 876 | 3.81 |
| Alcarez | 5 | 563 | 3.68 |
| Tsisipas | 4 | 536 | 3.67 |
| Rune | 4 | 1127 | 3.64 |
| Average | 787 | 4.38 | |
| Median | 736 | 4.32 |
It turns out that my hypotheses were supportable by the numbers. Not only was the number of rally shots the most of any match that I tracked but so were the average shots per point (excluding aces and double faults). Although there were three other matches with shots that exceeded 1,000 shots, the match I saw was still the highest, and the shots per rally point were by far the highest. In fact, it exceeded the average by almost three standard deviations, which is quite an outlier. This statistically proves what my eyes saw, and emotions felt: We saw one of the most competitive matches of the tournament, despite Djokovic winning in straight sets.
I then wanted to see what it takes to win these matches in terms of the balance between being aggressive and opportunistic versus defensive and conservative. The app assigns each point as to whether someone hit a winner, forced an error on his opponent, or made an unforced error. I calculated the ratio of winners and forced errors (Success) to unforced errors and forced errors created by one’s opponent (Mistakes). I did this for the winner and loser of the matches in the table. I also added the percentage of points won. Here are the results.
| Round | Ratio Winner | Ratio Loser | % of Points Won | |
| Djokovic | 3 | 0.96 | 0.35 | 53.0% |
| Djokovic | 4 | 1.67 | 0.28 | 62.0% |
| Ruud | 1 | 1.04 | 0.27 | 56.9% |
| Zverev | 3 | 1.05 | 0.31 | 54.0% |
| Tsisipas | 3 | 1.27 | 0.28 | 60.2% |
| Alcarez | 2 | 1.35 | 0.19 | 59.7% |
| Djokovic | 2 | 1.33 | 0.33 | 56.6% |
| Zverev | 2 | 1.44 | 0.21 | 60.5% |
| Zverev | 4 | 0.91 | 0.18 | 58.9% |
| Tsisipas | 2 | 1.19 | 0.36 | 53.9% |
| Rune | 3 | 1.47 | 0.25 | 60.2% |
| Ruud | 5 | 1.46 | 0.53 | 55.2% |
| Djokovic | 5 | 1.28 | 0.43 | 55.3% |
| Alcarez | 3 | 1.27 | 0.22 | 60.5% |
| Djokovic | 1 | 1.38 | 0.38 | 57.8% |
| Alcarez | 4 | 1.55 | 0.30 | 60.0% |
| Ruud | 2 | 1.30 | 0.51 | 54.2% |
| Ruud | 3 | 1.30 | 0.51 | 53.7% |
| Alcarez | 1 | 1.24 | 0.19 | 60.0% |
| Ruud | 4 | 1.04 | 0.53 | 52.7% |
| Alcarez | 5 | 1.53 | 0.32 | 60.0% |
| Tsisipas | 4 | 1.45 | 0.36 | 58.5% |
| Rune | 4 | 0.89 | 0.43 | 48.4% |
| Average | 1.29 | 0.33 | 57.2% | |
| Median | 1.30 | 0.32 | 58.2% |
It’s clear that the winner consistently produces more winners and forced errors than errors he commits or are forced upon him. There were a few exceptions, one of which was the match we saw which reiterates how competitive it was. The losers typically commit three errors for every winner and forced error they generate. This goes to show how in life overall, and investing more specifically, how important it is to be well prepared and patient to know when to pick your spots to be aggressive, to go for it when the odds are in your favor, and also to have the discipline and training to play defensively when necessary. The goal is to do all you can to stay on the court or field. Always strive to keep playing the game.
I bring this up because it applies to how we have learned and managed our variable rate strategy at CWS over the last 12 years or so. Up until this year, our strategy had been incredibly successful in that our average interest rate had been materially less than the fixed rate equivalents, we had tremendous optionality to sell or refinance given the very cost-effective prepayment penalties, and we took advantage of this optionality by prepaying approximately $2 billion of variable rate loans over the last 10 years. This enabled us to sell properties opportunistically as well as refinance them into better loans. We were like Nadal on clay, who has won 91% of his matches on that surface. For over a decade, we were seemingly unbeatable.
Things changed of course with the rapid change in Fed policy to aggressively hike short-term interest rates to fight inflation. And while this has been very painful for us, it is something we knew could happen, although we assigned a very low probability to it. We have experienced higher rates before, so we knew it was prudent to manage our debt levels appropriately and keep large cash balances at our properties. In addition, it was also important to be willing to adjust our distributions if necessary to ensure our properties remained financially healthy. In other words, we, too, were preparing for our own Slam, although this one was the potential for us to get slammed versus winning a prestigious tournament that requires extraordinary effort given the five-set format.
Here is a graphical depiction of the challenge we’ve been facing and continue to face. Let’s first start with a graph of the 90-day T-Bill yield to show how we have been benefiting from our much preferred disinflationary environment, akin to Nadal playing on clay.
One can see how all was well until 2023 for us since we had a very effective interest rate cap for most of our properties through December 1, 2022. To put this slam in perspective, the next chart shows the average 90-day T-Bill yield for 30 days compared to the average for the previous 12 months. The theory being that this can give us some indication of what kind of stress to prepare for because when the current yield is materially higher than the average yield for the previous year, then a lot of pain can ensue as this implies a material increase in debt service as well as the prospect of having to buy much more expensive interest rate caps when they expire.
One can see that during previous interest rate increase cycles going back to 1984, the peak spread was typically 1% to 1.75%. Of the 210 months, the spread has been positive. The average premium was 0.58%. Interestingly, of the 260 months, the spread has been negative. It’s been -.58%.
In November 2022, we hit 2.82%, significantly higher than during this dataset. I excluded the 1970s and early 1980s because, in some cases, the spread was higher, but the percentage increase was not nearly as significant. For example, there were three data points (3/80, 12/80, 5/81) when the spread was approximately 4.50%, but the percentage difference was only 32% to 37%. Between December 2021 and September 2022, the percentage premium was between 200% and 347%. And while it’s currently “only” at 35%, this doesn’t lessen the pain that rates are still much higher on an absolute basis than they had been prior to the run-up when a lot of aggressive loans were put into place that are either floating rate and now at much higher rates or may be maturing over the next couple of years into a much less hospitable lending environment.
There is now no question that It is becoming much harder to get loans for commercial real estate, particularly for office buildings. It’s also extremely challenging to obtain construction loans to build new apartment communities as this tweet exemplifies.
Yes, we are no longer playing on our familiar surface of clay in which we excelled. We also knew this was not only a possibility but a certainty. What we didn’t expect, however, was how fast we would be taken off of our preferred surface and for how long. Although per the forward curves and the Fed’s own projections, as shown in this chart from Chatham Financial, investors and the Fed believe that we will be returning to clay over the next couple of years, playing on this new surface under these difficult conditions is not without its stresses and pain.
We have no choice but to do what is necessary to stay vigilant and to batten down the hatches under these more challenging circumstances. For now, we have to assume this is the new normal and while eventually the Fed’s aggressive tightening and balance sheet contraction will have its desired effect of hurting the labor market, it’s also facing a countervailing challenge of strong fiscal expenditures for infrastructure and clean energy that make its job more difficult. All of this is to say that we are going to continue to operate as if we’re in a slam environment until we’re not.
By the way, while I was writing this, Djokovic beat Alcaraz in the highly anticipated semi-final match in four sets. Despite playing one more set than the match I saw, it took 13 minutes less. Here are the relevant stats that I was tracking in the other matches.
| Round | Rally Shots | Shots per Rally | Ratio Winner | Ratio Loser | % of Points Won | |
| Djokovic | 6 | 946 | 4.46 | 1.20 | 0.39 | 56.1% |
After a close first two sets, Djokovic pulled away and showed that his being 16 years older proved to be an asset and not the liability some feared, as he clearly proved that he had built himself to be prepared for Slams. His 1,261 matches (1,051 victories) prepared him to play someone who is 20 years old, a phenom but has only played 154 matches (120 victories). Alcarez will assuredly learn from this experience and be even better prepared in the future for Slams.
Djokovic won his match Sunday, June 11, 2023, winning more Grand Slams (23 wins) than anyone in history. And the fact that he can break the record and not only pull one ahead of Nadal but to do it in Rafta’s house, where he has won an incredible 14 titles, will add to the drama of the storyline.
With all of that being said, here are my two takeaways:
- I still saw the best match.
- We have been and will continue to prepare and strengthen ourselves for our own slam at CWS.
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