If you’re not a baseball fan, you might not be familiar with the name Billy Beane. However, his contribution to America’s favourite pastime has had profound effects on the decision-making process across the sporting world.
His story even gave rise to a Hollywood production starring Brad Pitt – 2011’s Moneyball, based on the 2003 Michael Lewis book of the same name.
But who is Billy Beane and what does his story have to do with evidence-based investing?
Read on to discover how a beleaguered general manager and a statistician helped transform the fortunes of the Oakland Athletics baseball franchise, inspiring a change from traditional recruitment across professional sports — and how that relates to investing.
Billy Beane adopted a statistical approach to recruitment in a bid to change Oakland’s fortunes
Beane had undergone a similar career path to many young sporting prodigies. He had been a sensation as a young player and was considered an inevitable first pick in the 1980 Major League Baseball (MLB) draft.
However, his indecisiveness over whether to pursue higher education at Stanford or go straight into MLB led to him being selected much further down the draft, ultimately going to the New York Mets with the 23rd selection. It ended up being an omen of things to come.
Beane was never quite able to hit the heights expected of him and slowly drifted from team to team, enduring a journeyman career that saw him retire in the minor leagues.
The experience of over-hyped expectation versus the realities of the professional game would eventually influence Beane’s decision-making process when he moved into a front office career in the MLB at Oakland Athletics. First as a scout, before slowly moving up to the senior position of general manager — effectively the role of key decision maker for baseball teams.
The biggest issue Beane faced at the Athletics was being able to produce a competitive team on a significantly smaller budget than his direct competitors. In order to get around this issue, Beane shifted away from the traditional baseball methodology when it came to recruitment — scout’s intuition — and adopted “sabermetrics”.
Sabermetrics was coined by sports journalist and statistician Bill James in the 1970s, and aimed to redefine the parameters around baseball recruitment to focus more on empirical, statistic-based evidence rather than the intuition of key scouts and coaches.
However, James’s approach was largely derided by the greater baseball community and remained on the fringes of the game until Beane made it central to his strategy at the Athletics.
Sabermetrics views players from a purely statistical viewpoint and eliminates the emotional or personal biases of scouts from the recruitment process. Scouts might have traditionally eliminated potential candidates because of their childhood background, their personality types, odd physical traits, and other factors. But sabermetrics purely examined those players stats along batting and pitching measurements to assign the player a “true” value.
Beane sought to implement sabermetrics to rejuvenate the Athletics squad and build a team capable of making the playoffs, but on a fraction of the budget of their competitors.
Evidence-based investing uses a similar approach to protect and grow your investments
At Grey Parrot, we use a system of evidence-based investing, also known as “smart investing”, to develop a strategy for your clients’ portfolios.
We’ve found that there is a higher probability of success when a passive investing approach is adhered to that relies on data, studies, and extensive research over trying to beat the market by chasing gains from short-term bubbles or relying on gut instinct.
We aim to be more Billy Beane and less like those old school baseball scouts.
Evidence-based investing involves a “buy and hold” approach alongside assembling a highly diversified portfolio with low fund costs. This method is more likely to help your clients’ investments avoid underperforming the market and ultimately generate the gains needed to meet their long-term goals.
The alternative — active investing — isn’t just ineffective in the long term, it can be expensive too. By working with Grey Parrot, we can put together a plan for your clients that looks to outperform the market without the significant burden to their time and money that an active approach could cost.
In keeping your client’s costs low, more of their money remains invested. This ultimately gives them higher compounded returns throughout their investment timeline.
Beane understood this approach. Instead of constantly chasing the next “hot” thing, or pouring all his time and effort into scouting each player in person and getting to know them, he opted to reduce costs, focus on the core facts, and achieve growth for his team that way.
IG reported on the average returns from the FTSE 100, the UK’s leading stock market index, between 1984 and 2019. They found that over any 10-year period investments in the index averaged annual returns of 8.43%. This shows that a passive and long-term approach to investment typically produces positive returns.
As billionaire investor Warren Buffett aptly put it: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes”.
Beane’s Athletics would go onto make the playoffs for four consecutive seasons through to 2003. His strategy was finally recognised by the sporting world, and he would be offered a then-record $12.5 million a year to take over the Boston Red Sox, an offer he would decline to stay loyal to his beloved Athletics.
Today, most major sports take an evidence-based approach to their key recruitment decisions as Beane’s legacy lives on.
Get in touch
If your clients could benefit from a fresh approach to their investment portfolio and a strategy that favours evidence over instinct, they should contact us by email at info@grey-parrot.co.uk or call us at 02039 871782.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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