Insights   |   January 31, 2020

Getting on Base: Moneyballing Your Portfolio Using Risk Factor Investing

Baseball scouts must have insanely good intuition to do their jobs well. They look for hundreds of miniscule traits in a prospect in order to determine if they’re worthy of the big leagues: bat speed; arm strength; does he get a first step on the ball?; is he light on his feet?; even a player’s character and his looks come into play. With all these traits to look for – each of which can make or break a player – how can scouts be expected to not make mistakes?

Caroline Grandoit
Caroline Grandoit
Global Head of Total Portfolio Solutions

Billy Beane – formerly the General Manager of baseball’s Oakland Athletics – decided they couldn’t. With his team’s shoestring budget, he couldn’t afford to make mistakes when signing players. Was there a simpler way to find baseball talent?

Beane thought there was. After studying the application of statistical analysis to baseball records, Beane decided that he didn’t need to consider hundreds of miniscule traits in each player in order to put together a winning team. In fact, he only needed to know two things: does the player get on base? and can he hit?

Beane’s strategy helped the Athletics win their division in 2002. That season, they won the same number of games as the New York Yankees, though the A’s did so with less than a third of the Yankees’ payroll. Beane’s exploits are welldocumented in Michael Lewis’ 2003 book Moneyball: The Art of Winning an Unfair Game and in the movie of the same name. A favourite excerpt comes in the film, at a meeting during which the scouts argue that Beane’s target players don’t have the traits that the scouts normally seek:

Beane: “He can’t throw and he can’t field, but what can he do? Guys, check your reports…he can get on base!”

Scout: “So he walks a lot…”

Beane: “He gets on base a lot, Rocco. Do I care if it’s a walk or a hit?”

Clearly, Beane understood the importance of filtering out the noise, reducing the potential for errors and simplifying problems to come to elegant solutions.

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