Moneyball (a popular book and movie) describes the successful strategy of Oakland A’s (baseball team).
The thesis is simple-Using statistical analysis, small market team can compete by buying assets that are undervalued by other teams and selling ones that are overvalued.
The best-known Moneyball theory was that on-base percentage was an undervalued asset and sluggers were overvalued.
At the time, protagonist Billy Beane was correct. Jahn Hakes and Skip Sauer showed this in a very good economics paper.
From 1999 to 2003, on-base percentage was a significant predictor of wins, but not a very significant predictor of individual player salaries. That means players who draw a lot of walks were really cheap on the market, just as the movie narrates
The DOTS Ignored
The dots were available in open, however were ignored by the bigger teams as they had the funds to buy what they thought were the best players.
The smaller teams were following the strategy of the bigger teams and failing.
There is always a lot of talk about “connecting the dots”, however very limited focus on “collecting the dots”.
When you don’t collect the dots, how would you connect them.
The journey has to start with collecting and not connecting.
If you leave it to luck, you will connect dots by accident.
However, if you start “collecting the dots”, it will become part of the process.
Realization can come only when information is available.
However often there can be 4 barriers to information:
- Awareness of the importance of the information
- Attention-What is attention being paid and how important is it?
- Past Experience-Baggage that prevents people from collecting the relevant information
- Bureaucracy-Information not being shared due to bureaucratic reasons
- Consciousness-being aware of the need to collect the dots
- Networking- Create a relevant network to keep collecting the dots
- Collaboration-create community to reinforce collection
- Categorization – Putting relevant information where it belongs
What it means is that a high level of consciousness and understanding of what information is relevant, collecting that information and processing that information is needed to collect and connect the dots.
While this is all process, what it starts with is knowing that there are dots, that you need these dots to complete the picture and then having the ability to go after this objective as a mission.
Collecting the DOTS-Investing
Investing has been a big pre-occupation for investors at large since the beginning of the pandemic.
Those who came after the fall got fantastic returns and created a template for those who missed to be part of the “Great Investing Game”.
Everyone became an investor and those who were not buying equities directly got “FOMO”.
India has been opening 1.8Mn broking accounts every month since the beginning of 2021.
The great rush to own equities and emulate the success of others is a big motivation.
Just reading this makes you understand the flaw in the thinking.
It’s not about investing but about participating in the “Gold rush”.
And we know how that ends.
Step Back-Look at the DOTS
Investing and success in doing investing is about taking a step back.
Understanding your objectives-and no it can’t be “make the same returns as your neighbor”.
You are not getting into gambling.
Your first objectives have to be to understand what you are getting into, why and what is your risk-reward.
This requires serious advisory and not “following the herd”.
It’s about “collecting the dots” and “connecting them”.
Having a good advisor who can help you manage your instincts while getting you exposed to what you intend to do is important.
However even more importantly if you are looking to be a serious investor, understanding the process and you is very important.
This requires “deep thinking” and investment of time.
If you don’t/can’t invest this time, think about doing something else.
This is a dangerous place to discover yourself if you don’t know who you are.
“Collect the Dots” before you “Connect them”