(MONEY Magazine) – John W. Henry--owner of the Boston Red Sox and perhaps the world's foremost commodities trader--is expounding on the limits of human intuition, when he catches himself halfway through a not-so-flattering comparison between major league scouts and Wall Street analysts. "These are controversial statements," he says. "You probably don't realize it, but from a baseball-insider perspective all this is going to be highly offensive."

If that's the case, baseball had better grow a thicker skin, because lurking beneath Henry's gentle demeanor is the mind of a true radical. He made his fortune challenging a core tenet (perhaps the core tenet) underlying Wall Street--namely that market fundamentals such as earnings and interest rates can be consistently predicted. As Henry sees it, life is simply too dynamic: "The only thing that doesn't change is what ultimately drives markets, which is people's expectations." Expectations manifest themselves as price trends, which Henry and his colleagues at John W. Henry & Co. identify through a sophisticated analysis of market data.

Now, a year after leading a $700 million buyout of the Red Sox--the richest price ever for a major league club--the 53-year-old Henry is embarking on a fascinating, perhaps quixotic plan to apply to baseball the same scientific, by-the-numbers approach that's worked so well for him as an investor. He and his hand-picked general manager, 29-year-old Theo Epstein, are challenging decades of baseball wisdom by basing important decisions--everything from trades to the structure of the bullpen--in large part on objective research, or what hard-core fans call "sabermetrics." "Actual data means more than individual perception or belief," says Henry. "It's true of baseball, just as it is of markets."

Putting hard data on an equal footing with human judgment may not sound radical, but in the tradition-bound world of baseball it is. Sabermetricians who've worked for teams say that their ideas are often dismissed by insiders who can't understand how anyone could argue, for example, that clutch hitting is largely a myth.

Craig Wright--a baseball number cruncher who spent years toiling in semi-frustration for the Los Angeles Dodgers and Texas Rangers--compares Henry's remaking of the Red Sox to the invention of the modern farm club system by the St. Louis Cardinals and the signing of African-American players by the Brooklyn Dodgers. "You make your biggest gains in this game not by doing the accepted stuff better but by doing something totally innovative," says Wright. "I think the capability is there to make the Red Sox the most effective franchise in baseball, with a huge advantage over everybody else for the next 15 to 20 years."

Growing up in rural Arkansas and Illinois, Henry was your typical baseball-obsessed farm boy. He'd spend his evenings next to his dad's radio, listening to Harry Caray's play-by-play of the St. Louis Cardinals. "I used to keep all these detailed statistics," Henry recalls wistfully. "If somebody asked me about a certain player, I'd immediately tell them what his batting average was and how many home runs he had. It's because of baseball that I grew up being able to do all sorts of calculations in my head."

His father passed away when Henry was 25 years old, leaving him in charge of some 2,000 acres of farmland. A somewhat directionless college dropout, he began dabbling in the commodities market to hedge against a drop in crop prices. He soon realized that he was a better trader than he was a farmer.

Over time, Henry grew frustrated with the seat-of-the-pants trading strategies in vogue back then and looked for a more systematic approach. His quest led him to the writings of W.D. Gann, a turn-of-the-century trader who pioneered technical analysis. "Gann had some tremendous concepts, most notably that markets are manifestations of people's expectations," Henry says. "Since man is mechanical, you ought to be able to come up with a mechanical way to trade."

Henry spent the summer of 1980 poring over 100 years of price data, eventually devising a trading model that still operates the original JWH fund (launched in 1982) and provides the intellectual foundation for 10 others. Henry's funds have recorded average annual returns ranging from 12% to 31%, trouncing the major stock and bond indexes. The second-largest JWH portfolio, Financial and Metals, returned 45% in 2002 and boasts a 31% average annual return all the way back to 1984. It's a record even Warren Buffett might envy, especially considering that JWH performance figures are net of some hefty fees--2% of assets and 20% of profits. (Yes, several JWH funds are available to individuals via the big brokerage firms.)

Henry returned to his first love, baseball, in 1999, when he bought the Florida Marlins. At first, he was the consummate hands-off owner. "We had a general manager in Dave Dombrowski who's one of the best in the game and had won a World Series," he says. "I thought it was my role to support the general manager." But the longer Henry was in the game, the more apparent baseball's problems became to him. Teams were signing older, injury-prone players to long-term contracts, even when equally able replacements were available in their own farm systems.

By the time he sold the Marlins to buy the Red Sox, Henry was convinced that baseball was putting too much emphasis on tools--baseball jargon for athletic ability--and not enough on performance. The on-the-field success of the Oakland A's, then the only team using sabermetrics, confirmed Henry's view. "The Marlins would draft athletes," he says, "while the A's would draft baseball players." Nevertheless, Henry says he doubts he would have undertaken his baseball revolution had Epstein, then the Sox's assistant GM, not been an even more enthusiastic advocate of sabermetrics than he was himself.

The first indication that Henry was up to something new came last November, when the Sox hired baseball writer, statistician and all-around muckraker Bill James as an adviser. The author of half a dozen books, including The New Bill James Historical Baseball Abstract, he not only coined the term sabermetrics but is its best-known practitioner.

The fact that an accomplished investor like Henry would be drawn to James came as no surprise to Don Phillips, managing director of fund tracker Morningstar. James' essays have been required reading for Morningstar analysts for years. "The way he uses statistics is ingenious--he'd take these baseball adages that have been passed down for generations and check under the hood to see if they were true," says Phillips. "James had a huge impact on my thinking because there were all sorts of analogies between what he was doing with baseball and what we were trying to do with mutual funds."

Baseball insiders haven't been nearly so enthusiastic. "A little fat guy with a beard who knows nothing about nothing," is how Hall of Fame manager Sparky Anderson once described James, who's neither short nor fat. Julian Mock, a former Cincinnati Reds scouting director, insists that statistics are ruining baseball. "Today you have owners trying to control things by hiring young GMs without any deep experience in baseball," says Mock. "They turn to stats because they don't have the ability to judge players the way the old-timers do."

Mock's viewpoint is also common in the baseball media. After the Sox traded for Jeremy Giambi last December, Boston Globe columnist Dan Shaughnessy claimed that it was "a tad frightening that the Sox made a big deal of Giambi's on-base percentage.... It's easy to see Bill James' fingerprints on this."

"It's like any field," says ESPN sabermetrician Rob Neyer. "There's a vested interest in maintaining the status quo so you don't have to learn anything new."

The impact of the Red Sox's new stat-driven approach is unmistakable. Take Jeremy Giambi. Sabermetricians have long contended that batting average is vastly overrated as a gauge of a player's value. The younger brother of New York Yankees star Jason Giambi, the Sox's new first baseman has a pedestrian .269 career batting average, but his career on-base percentage, which includes hits and walks, is a stellar .381.

Picked up from the Philadelphia Phillies in exchange for a second-tier pitching prospect, Giambi looks even better when judged by "runs created per game" (RC/G), a more sophisticated sabermetric tool favored by writer Ron Shandler. (His Baseball Forecaster 2003 has a prominent place on Epstein's bookshelf.) RC/G measures how many runs a batter would score if he filled an entire nine-man lineup and faced a league-average pitcher in every at-bat. By that measure, Giambi was a better hitter last season than Arizona Diamondbacks slugger Luis Gonzalez.

More controversial than the emphasis on on-base percentage is the Sox's decision to begin 2003 without a traditional closer in the bullpen. Since the mid-1980s, teams have used their best relief pitcher almost exclusively to protect leads in the ninth inning. The Red Sox have relievers who could fill this role--Alan Embree and Ramiro Mendoza come to mind. But James contends that while it may be "psychologically comforting" for a manager to use his best pitcher to protect a two-or three-run lead in the ninth, it's a waste of the pitcher's talents. "Using your relief ace to protect a three-run lead is like a business using a top executive to negotiate fire insurance," James writes in his most recent Baseball Abstract. James studied the use of relief pitchers over seven decades and found that bullpen aces improved teams' odds of winning most in tie games--a situation modern closers almost never face. The next biggest improvements: in games with one-run leads and those with one-run deficits.

The Red Sox's new modus operandi is evident behind the scenes as well. The team now has a cadre of baseball statisticians studying everything from which pitcher usage patterns minimize injuries to whether minor league coaches can be evaluated by tracking the improvement of their players. Sticking to this kind of scientific approach is hard, but discipline has been the hallmark of Henry's career as an investor. For better or for worse, it's now the hallmark of the Red Sox too. This past off-season, the Sox missed out on acquiring star pitcher Bartolo Colon because Epstein deemed Casey Fossum--the young lefthander he'd have had to part with--too valuable.

So far, Boston fans seem to be giving Henry & Co. the benefit of the doubt. "People don't care how they get there, as long as they win," says Scott Saklad, who manages a souvenir store across the street from Fenway Park. While no one is guaranteeing a title in 2003, Epstein does believe the end is near for the Red Sox's 85-year championship drought. "What John hopes we can create is a methodology that gives us a distinct advantage over many trades, many draft picks and many seasons--with our goal being to make the postseason every year," Epstein says. "There are eight postseason teams. With such a large degree of chance in a short playoff series, that means we should theoretically win the World Series every eight years."

Spoken like a true statistician.