How Would Billy Beane Manage An Investment Team?

October 21st, 2011

By Ken Kam
Oct. 21, 2011

I am flattered that Reuters described Marketocracy as “The Money Manager Version Of Moneyball.” I am a huge fan of Billy Beane, and I think his ideas about managing a baseball team are just as valid for managing an investment team.

Baseball players obsess about their performance because their careers depend on it. Perform well and you get to play in the major league. Perform poorly and you get benched. Recruiting talented people, and holding them accountable for their results is the key to success in baseball and I think its the key to success in managing money.

Many people assume that this is already how professional investment teams are managed. But I’ve been in the money management business for over 20 years, and it’s not so. Most investment analysts are recruited right out of business school at a point in their career when they have no investment track record. These rookies are often put into a sort of apprenticeship program in which 5 of them form an analyst team for a portfolio manager (PM). The PM assigns each analyst a list of stocks to cover, and teaches them how to analyze stocks in the PM’s style. The rookie’s job is to perform this analysis on the companies on his list, and advise the PM when to buy or sell those stocks. After 5 years, generally speaking, one of the rookies will have done well, and the other four will have washed out.

What would Billy Beane, do differently?

First, the idea of hiring people with no investment track record for an investment team would be laughable. Professional baseball teams have farm systems where they vet players thoroughly before they are put in a position where they can affect the team’s performance. For Billy Beane a thorough vetting meant having a track record showing exceptional ability on a metric — such as on base percentage — that could help his team win games. Often, his analysis led him to go after players other teams didn’t want because they didn’t look like professional baseball players are supposed to look. But Billy Beane hired them anyway if his analysis showed they could help his team win games.

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