By: Scott Davis
The 2003 book Moneyball by Michael Lewis was a true story about “radical” baseball general manager Billy Beane and his use of analytics and technology to drive an almost immediate and exceptional outcome in Oakland. Billy Beane had many breakthroughs – one of which was a view that batting average as a statistical measure was useless — replaced instead by on-base percentage. In effect, by using the proper analytical tools, Beane was able to trade overpriced players (with high batting averages) and replace with cheaper players (with low batting averages, but high on-base %). What he was able to save in payroll allowed him to build a more complete baseball team, but with few headline stars. The result being his ability to build a championship caliber team on a small market budget. His unconventional thinking was shunned by the industry until John Henry of the Boston Red Sox “blessed” and embraced it. It changed the business of baseball forever. Brad Pitt immortalized it in his 2011 movie adaptation, which was quite good, in my opinion.
Michael Lewis’s book celebrated unconventional thinking and wrote possibly the only sports book in history to be broadly adopted by the business community as a guidebook to both utilize data analytics and also question historic commonly used conventions — with far reaching impact from the factory floor to the offices on Wall Street.
When we take a step backwards — there was a confluence of three forces that drove Beane: technology, analytics, and a failed baseball team. When I think about our own industry, we have similarities to consider — most notably a failure in active management that seems epidemic. And though there are widespread quant funds popping up in our world, the average traditional portfolio manager appears to utilize only a fraction of the available technology today – and not much more than he/she used a decade ago. The result being our entire industry, including suppliers like myself, are at risk of extinction. We must learn and adapt.