Moneyball, Finance, and Statistics

As the world series rages on amongst the remaining teams, we at Tall Oak were drawing analogies between baseball and finance. Baseball statistics are endless, as are financial statistics. Numbers, numbers and more numbers.

If you’ve read the book or seen the movie Moneyball, you will know that the story line is about measuring the right things. To build a talented team, make sure your statistics are about getting on base. 

According to the theory in MoneyBall, RBIs (runs batted in) as a statistic is essentially meaningless. A batter has absolutely no control over the batters who go before him. Any batter, at any time is expected to try his best to hit the ball. There is no special swing or strategy that is preserved for when players are on base. 

A more useful statistic, according to the book, is how often does a player get on base? And, by the way, who cares how the player got on base. If the batter draws a walk, bunts, or hits to left field, the important statistic is, can he consistently get on base? He can’t score if he’s on the bench.

In finance we have endless statistical measurements of performance. And, just as in baseball, some measurements can be more useful than others. 

For example, some statistics, such as year-to-date (YTD) returns can be interesting to look at, and may be as popular to investing, as RBI stats are to baseball. But as a performance number, YTD numbers really aren’t very useful for making investment decisions. Short term market fluctuations are captured in the YTD number, but the larger, longer-term investment strategy is not. Just as a batter cannot control who else gets on base, money managers have no control over day to day market reactions to noise and news.

Instead, we focus on factors that are not only more controllable, but also have a bigger impact on long-term performance. These include overall portfolio risk, which we influence through an appropriate mix of asset allocation, and global diversification. Adding investments from outside of Canada provides exposure to opportunities not found in Canada’s energy and banking-heavy economy. We use the same overall approach whether we are selecting individual stocks and bonds for our clients or we’re selecting best-in-class money managers. 

The result is not just a well considered investment strategy, but also a disciplined approach to guide your strategy as it inevitably evolves over time. Most critically, this approach aims to take the emotion out of investing, ensuring your portfolio is built objectively.

Of course, we can only take the baseball analogy so far. There is after all, no World Series of finance. The key is to pay attention to the right things. At Tall Oak Private Wealth, we continually watch the numbers and let the facts drive our decisions. 

The views expressed in this commentary are those of Tall Oak Capital Advisors as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Statistics, factual data and other information are from sources Tall Oak believes to be reliable but their accuracy cannot be guaranteed. This commentary is intended for distribution only in those jurisdictions where Tall Oak Capital Advisors are registered. Securities-related products and services are offered through Raymond James Correspondent Services Ltd., member Canadian Investor Protection Fund. Insurance products and services are offered through Gryphin Advantage Inc., which is not a member-Canadian Investor Protection Fund. This commentary may provide links to other Internet sites for the convenience of users. Tall Oak Capital Advisors is not responsible for the availability or content of these external sites, nor does Tall Oak Capital Advisors endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Tall Oak Capital Advisors adheres to.