By Kathy Kristof
Sept. 23, 2012
I didn’t start reading Michael Lewis’s “Moneyball” for stock market advice. I just wanted a good read during the battle with middle-age bulge I wage every morning on the cross-trainer. But I soon started comparing the strategies of Oakland Athletics general manager Billy Beane with those of the wisest investors I’ve encountered over the years. The lessons are worth sharing.
Don’t believe your eyes. Baseball can so stir your emotions that perception belies reality. Watch a player slug a couple of home runs, and you may believe he’s a star. Investors are likely to react similarly to hot stocks and funds. Before you invest in a company because, say, it knocked the cover off the ball with its last earnings report, check the longer-term record to see how regularly those long balls occur.
Capitalize on inefficiencies. When the cognoscenti see a flaw in a player, they’ll tend to knock down his value. So it is with stock picking. When investors detect a problem at a company, they’ll knock down the price of its stock. Beane would dig into the numbers to find players he liked. He’d then put them on a wish list and pick them up when the market discounted the player’s value because something was amiss.
Don’t watch the game. When the A’s were on the field, Beane went to the gym. That’s a wise approach for most investors, too. There’s no need to look at your accounts daily. You need to look at your investments maybe once a quarter or once a year.
One game is not a season. The A’s recognized that with their low-cost roster, they were not going to win them all. Neither will you. But if you win with more than half of your investments – and don’t take a bath on your failures – you’ll be ahead of the game in the end.
Experience reduces risk. The younger the company, the shorter the track record and the more likely it is to fail. The same holds true in baseball. A kid drafted out of high school stands little chance of making it to the big leagues. Beane considered college players a safer bet because they have more experience. Similarly, the longer a company’s history, the better investors can see how it has managed through good times and bad.
Original Print Headline: ‘Moneyball’ good for investors, too