It was a series of co-incidences that I stumbled upon the genius of Billy Beane who shook the US major league baseball with his absolutely different approach towards team formation. His recent move out of Oakland A after 3 decades could be a major sporting development but his work there makes for an intriguing case study for statistics students and academicians, punters, business managers and common investor too!
I first read about this character Billy Beane during one of the data analytics courses last month and was awe-inspired not only by the application of mathemetical concept to the sporting event but also by the sheer audacity he showed to challenge the big boys with deep pockets – a behavioural aspect that very few exhibit. Well, I am not a sports fan least of all Baseball but what generated my interest to delve a bit deeper was this later aspect. This led me to discover about the book Michael Lewis had written way back in 2003 titled Moneyball – The Art of Winning an Unfair Game which later got adopted as a Brad Pitt starrer by same name in 2011. The latter makes for a delightful watch for other obvious reasons 🙂 besides the fact that the book gets too technical for people not following the sports including myself but I drew upon my tutorials to get a bit of hang about the game.
Coming back to the main thesis from the lenses of common investors, the important takeaways for me were two-fold:
Challenging the established norms
One of the reasons there is polarisation across varied streams is due to the temptation of giving into the established norms which hands over unbrindled power to top few guys who call the shots and most others follow often missing the key objective in the process. Linking it to how Mr. Beane approached this problem made me realise the follies we often make as investors. While most big league teams focussed on amassing the best players who could hit hard or pitch right, Mr. Beane followed the approach of amassing the best wins not players – the combinations which can work equally well.
The analogy I see with this in the personal finance is the buying of individual securities that leading money managers are buying without regard to factors such as timing, goals, portfolio weight, risk tolerance etc. Its important to evaluate the investment thesis in the context of the portfolio – which combination can give the winning streak. By following herd mentality, one tends to drive up the prices which becomes a self fulfilling prophecy and widens the divide further.
Finding the winning solution with available resources
This brings me to the next important takeaway and in a way underscores the importance of the first one. As Mr. Beane had limited budget in which he had to construct a winning team, he changed his approach of not focussing on best front-line players but a combination of mediocre players who could collectively deliver the stated objective with given resources.
As retail investor with limited resources to meet our life goals, one needs to put them in the best combination of assets which can create consistent returns. Given the limitation on resources, we may not have access to the top notch money managers given the floor on investments and /or fees and following their moves blindfolded could be more fatal. One can generate winning combinations even through mediocre assets by adding a dash of consistency. While I cannot emphasise enough the importance of compounding which is touted as the eighth wonder of the world, its also a double edged-sword whose rewards and penalties are asymmetric.
The lessons from MoneyBall could be manifold depending on which lens one views it from but one of the biggest one for me has been to embrace a mindset of learning from others’ wisdom and not cloning.
#moneylessons #consistencywins #nottoetheline