Moneyballing the Financial World
In Michael Lewis' 2003 book and Columbia Pictures' 2011 movie of the same name, the audience meets Moneyball -- the term that Lewis gives to a new approach for the better measurement of baseball talent and performance. The approach is adopted by a nonconformist general manager, Billy Beane of the Oakland Athletics, who proves over the course of the book and the movie (and the years that would follow) that Moneyball leads to better baseball analysis, and ultimately better baseball. "If you can't measure it, you can't manage it," the old business saw runs, and so as baseball's measurement tools have improved, its management decisions have improved, and the world -- here, the world of baseball -- has gotten smarter, more competitive, and better.
I'm a big Moneyball fan (I have previously written a bit about my own baseball background). My first published paid pieces -- before The Motley Fool ever existed -- were about sabermetrics, the study of baseball statistics. Specifically, I was urging the founders of fantasy baseball (Rotisserie Baseball, it was called back then) to select better statistics for fantasy baseball leagues. Eventually, I traded in my sabermetrics hat for a belled cap and have never really much looked back.
Until now.
The more I live and breathe as both a professional investment advisor and as co-chairman of an 18-year-old Internet company working to help the world invest better, the more I am convinced that the world of finance has a critical lesson to learn from the world of Moneyball. And the longer we go without learning it, the poorer (in every way) we shall all be.
"What's his on-base percentage?"
Part of what makes baseball so interesting and compelling to lovers of numbers is that it is scored. The runs are counted, of course, inning by inning, but it's way more than that. Every pitch is noted, analyzed, documented. Every swing, and every time a hitter doesn't swing, is noted, analyzed, documented. In the world of baseball we can find every player's stats, every team's stats, every stat throughout most of baseball history, at this point. Everyone is scored, rated, ranked. Even minor-league players, even college and increasingly high school players, operate under the same conditions -- under a microscope.
No game of consequence is played without at least one official scorekeeper noting in his scorebook (or maybe an iPad these days) everything that is happening. And if the scorekeeper sneezes, or spends too long in line at the hot-dog stand, there are any number of other fans in the stadium with scorebooks of their own. In the computer age, all of those statistics and rankings are moving from score pads into clouded databases, cheaply and conveniently accessed by anyone who cares. And all of this culture of scoring, of performance mattering, is exactly what sets up the conditions whereby Moneyball can work its magic -- better analytical decisions can be made only by collecting and aggregating data sets. The magic of Bill James (the real revolutionary, whose original ideas were basically just being enacted by Billy Beane and the rest of his generation) -- the magic of Bill James, I say, can be magical only if baseball is being scored.
"What's his on-base percentage?" we can ask of any hitter in professional baseball. And there is an unambiguous, insightful, and telling answer.
I'm writing this article today to present my love of baseball and Moneyball in direct contrast to my extreme distaste for the complete lack of scoring heretofore in a far bigger game: the money world, the world of finance and financial predictions. Compared with a scored, rated, ranked baseball world, the world of financial predictions is in a Dark Age. Swings being taken, in the form of financial predictions by modern-day analysts, are completely unaccounted for. Almost no one is scoring what is said in Barron's or on CNBC, few statistics if any are being gathered, and "fans" can't tell who's good and who's bad.
Even worse, fans don't even seem to be asking for scoring and accountability. As a result, even the most ardent fans cannot determine who are the good and the bad players in the money world. Again, baseball is so scored and accountable that we can quickly glean even meaningless statistics; any casual fan can click into the Internet right now to find a benchwarmer's stats from last season hitting on artificial turf in night games. In the much larger and more important world of finance, with real dollars on the line in every instance, you and I can't find the most basic meaningful stats on even the biggest and best-known players spouting financial predictions through every media channel.
How's that workin' for ya?
So how's this darkness playing out for us? As I wrote earlier, "If you can't measure it, you can't manage it." If no one is taking the time to hold people accountable for their Dow Jones predictions in The Wall Street Journal or a hatchet job (rightly or wrongly) on a new IPO in BusinessWeek or on the Fox Business Channel, the system doesn't improve. The audience doesn't get smarter and more discriminating, this weak demand fails to create a better supply of information, and media channels lack any incentive to provide quality information and predictions.
So as we close out another year rife with New Year's 2011 financial predictions that no one remembers, and New Year's 2012 financial predictions that few if any will retain, we are left with this: No one's counting the plate appearances. None of the uniforms has a number or a name. There is no scoreboard in the stadium at all. We have to stretch our imaginations to picture what that would look like in baseball, and what that would do to baseball. But in the world of finance, that is the status quo playing out with chilly, dull, gray repetition every day, and every year, to the next.
I predict things are about to change. In my next article, Part II, I'm going to reveal how we Fools are going to work together to bring Moneyball to the world of finance in 2012 and beyond. And as a consequence, we will truly fashion out of that accountability a better, smarter, truer, and richer world of tomorrow.
Read the rest of the "Moneyballing the Financial World" essay here:
The article Moneyballing the Financial World originally appeared on Fool.com.
David Gardner is the co-founder and co-chairman of The Motley Fool. You can see David's CAPS scoreCAPS scoreand hisFool profile.
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