Yesterday, I watched a movie called The Moneyball. Its a true story of Billy Beane, a general manager of the Oakland Athletics who changed the way baseball is played as a business. Though I am not really a baseball fan, there’s something about the movie that kept me interested. I realized that it is using value investing concept to get an advantage.
Beane’s team was cash strapped, and what’s more, his top 3 players was pirated by other teams. Lured by higher salary, the Athletics was trapped into a corner, no money and no good players to take them to the finals. The average budget for a team was around $100 million. Beane has only $30 million to go around. The team finds its place at the bottom of the pit.
Then Beane met Peter Brand. Brand is an economist. He was gathering data of the players. He knows the batting average, strikes, bases taken and whatnot of each players. And have them graph into a computer program for analysis. That’s pretty much what most stock screeners do today. They focused on a single metric. Not which have the highest batting or homeruns. But who gets more bases for less money.
That’s the important part. Who are the best players they could get for the less money. These players although having good stats, are paid less because other people see defects in them. They pitch funny, they walk funny, they are old, they are ugly, they swing funny, they got injured in the past, etc. But their records and past performance says they are good at certain positions. They are perfect example of stocks that nobody wants to buy, they are cheap, and they have problems. Its very much like value investing.
When their top players are averaging $1 to $7 million in salary per player. Beane can only get these undervalued players for fractions around $200,000 each. But just like in investing. Its a contrarian bet. The status quo is that, everybody plays baseball the same way. Much like trading is so prevalent that any investor would be laughed at just by picking ugly stocks and holding onto it for a long time. So Beane encounters rebellion in the management for having to pick the “thrash” players for his team. Much like value investing. Sometimes, being a value investor, you’ll be laughed at for picking the ugly stocks. And just like Beane, you must have the conviction and confidence in yourself that in the end, it’ll work out fine. If you did your homework.
Its a great example of thinking independently and thinking differently. A trait that value investing philippines would like to imitate.