I know it’s been 10 years since the film was released, and 18 years since the book that inspired it was published, but I want to talk about “Moneyball.” I’m a sports fan, and this movie and portrayal of the 2002 Oakland A’s was right up my alley. However, this isn’t the only reason I loved this movie.
If you’ve read my prior article, you’ll find I am a believer in statistics and fundamentals—often quipping that numbers don’t lie; people do. This concept, as shown in “Moneyball,” is applied to baseball by Billy Beane (Brad Pritt) and Paul DePodesta (Jonah Hill). In case you haven’t seen it, here is a very basic summary:
The Oakland A’s are a small-market team struggling to succeed against larger-market teams. In short, their best players are poached when rich teams offer them deals the A’s can’t match. In an effort to fight this, Oakland’s GM Billy Beane gets the help of Paul DePodesta to apply statistics to build a winning team, instead of the traditional methods that emphasized more “highlight reel” statistics yet didn’t necessarily correlate to winning championships.
This is illustrated in a brilliant scene where Billy presents players to his selection committee based on his statistics. The committee disagrees based on traditional yet trivial items like these players’ ages, off-field behavior, playing style, physical appearanc and even how attractive their partners are.
Instead of selecting winners on more speculative items, Billy and Paul look to select players based on numbers, facts and data. The things that typically do not lie.
Speculative Investing vs Data-Driven Investing
So why am I talking about a 10-year-old movie? Because after years of working in the financial industry, and studying the industry since the age of 10, I see people making the same mistake over and over again. They’re trying to make financial decisions based on looking at trivial measures, following the herd, and what I will deem as pure speculation. Listen, you are not alone; when I was younger, I made some of these same mistakes.
I see it when people talk about Cryptos, NFTs, or whatever new business or potential financial gimmick is making headlines. You’ve probably got a friend who invested in one or all of these, and may be seeing some gains (yet since the beginning of 2022, are probably experiencing some pain).
From what I’ve witnessed, people tend to get a bit envious when we see others succeed; and naturally want a taste. But should you really be making financial choices based on a fear of missing out, aka FOMO? What if I told you that studies have shown that envy leads to depression and anxiety[1]? Becomes less interesting, huh?
The problem, as I see it, is that much of this FOMO style of “investing” is speculative. So ask yourself the following questions:
1. Do you know what people’s situations really are? They could be telling you about their “wins,” but can you see their bank balance?
2. Are these wins or flukes? Anyone can get lucky once in a while, but Tom Brady didn’t win seven rings due to luck.
I believe that it’s better to get it wrong about something you know than to get it right about something you don’t. Why? To me, the latter builds dangerous false confidence that encourages you to keep making the same moves because you think you know what you’re doing.
Putting your hard-earned money into something based on FOMO is like swinging for a home run every time you step to the plate. These plays are amazing and often make the highlight reel when people pull them off, but we call them “home runs” not “proven, likely to succeed over time” for a reason.
Smarter Investing
I’ll be the first to put my hand up and say that I’m typically skeptical of many “hot new trends.” This is in part because I don’t initially have in-depth knowledge of them because they are still new and lack supporting data. Additionally, they typically lack cash flow and ample returns on equity[2]. Through the “Moneyball” lens, items that lack these qualities have often gotten one on the short-term highlight reel, yet typically lack the staying power to win the championship.
People often love the dopamine rush of “picking a winner.” Hey, why do you think the whole city of Las Vegas was built? People tend to love to be that person that gets to say, “I told you so.” However, the city of Vegas wasn’t built because people win … If this were the case, these hotels and underlying businesses would go bust.
My point is, however, you don’t have to pick an outlier to get this feeling. Choosing to invest in the best-quality businesses could be just as fulfilling. If you don’t believe me, just look at Billy Beane and Warren Buffet.
Buffet doesn’t step up to the plate and seek a home run with every swing. He takes the “Moneyball” approach. He looks at numbers, he plays smart, he looks for the best quality businesses he can find—some of which are undervalued—and has built his wealth this way.
Swing Investor, Swing
Speculative/FOMO investing versus data-driven investing, to me, is the difference between being that guy at the bar telling the same story about his one 50-yard throw for a touchdown in high school, and Tom Brady.
If you believe you know everything about a FOMO investment, then all power to you. However, I’m here to tell you that if you don’t, that’s OK. You can still build the wealth that you’re searching for by making careful, well-informed decisions: Creating wealth on “proven players” instead of “one-hit wonders.”
I’ll leave you with this quote from the man himself:
“If you keep knocking at the door, you’re going to win at some point. You’re going to get that ball that goes your way. You’re going to get a call that maybe you wouldn’t have gotten before. You’re going to make a play that wasn’t made before. So you know, I’m glad we keep knocking at the door.” —Tom Brady
Know what you know, but more importantly, know what you don’t. So, if you want to try to create sustainable wealth by living a life of FOMO, enjoy! We will be here waiting for you playing “Moneyball” once you get burned out.
At Julius Wealth Advisors, we’re here for the championship, not a highlight reel.
Jason Blumstein, CFA® is the CEO and founder of Julius Wealth Advisors, LLC ( www.juliuswealthadvisors.com ) a registered investment adviser. He has been investing and educating himself on personal finance since the age of 10. His company’s mission is to empower people to live their best financial lives, while fostering an ecosystem of integrity, knowledge, and passion! Jason currently resides in Englewood with his wife and two kids. He can be reached at 201-289-9181 and/or [email protected].
Disclosures
This piece contains general information that is not suitable for everyone and was prepared for informational purposes only. Nothing contained herein should not be construed as a solicitation to buy or sell any security or as an offer to provide investment advice. Past performance does not guarantee any future results. For additional information about Julius Wealth Advisors, including its services and fees, contact us or visit advisorinfo.sec.gov.
References
1. How to Calculate Return on Equity (ROE) – Investopedia, Ryan Furhmann, March 12, 2021.
2. The Role of Envy in Depression and Anxiety – Connolly Counselling Centre, unknown publishing date.
