In the movie Moneyball, Brad Pitt and Jonah Hill transform the Oakland Athletic baseball team from plucky underdogs to World Series runners-up. Pitt and Hill’s approach isn’t the typical rabble-rousing movie trope; it’s a cold, calculated data-driven approach. And it worked.
Moneyball the movie did take some liberties, but the underlying story played out during the 2002 American baseball season. This data-driven approach caught on league-wide.
This story isn’t unique to American baseball teams. UK football teams and the British Army have turned to using computer games to aid their scouting, and Team Sky took advantage of data analysis to win multiple Tour de France trophies. While data analysis may not inspire you to take up tobogganing, there are lessons you can apply when you consider investing your hard-earned money.
You want to make safe and sound investment choices. However, the wealth management industry isn’t making it easy for you, and at times, you think they are making it difficult on purpose. Investment markets are changing, challenging, volatile and uncertain. This is off-putting for you; even though you have the desire, the challenges you face are huge.
Verifiable and repeatable evidence should drive your investment decisions. Using the relevant available information is a prudent choice when making decisions that affect your or your family’s financial futures and well-being. There is a lifetime of investment information available to you, but do you have the time or knowledge to make sense of it?
Knowing what’s relevant is the tricky part. You can read news reports about companies, track and review thousands of charts and graphs, listen to stock pickers and their top tips, or invest in reputable companies. But who knows where that will get you?
Thankfully, you can apply an evidence-based approach to investing and sidestep the pain of doing all of the above.
Finding your guide
The key to intelligent investing is to find your mentor or ‘guide’: somebody with the right experience and expertise. You must be able to trust them as, without a guide, you are likely to get lost in the investment jungle. Lewis Carroll in Alice in Wonderland summed it up well…
"Would you tell me, please, which way I ought to go from here?"
"That depends a good deal on where you want to get to," said the Cat.
"I don't much care where," said Alice.
"Then it doesn't matter which way you go," said the Cat.
"So long as I get SOMEWHERE," Alice added as an explanation.
"Oh, you're sure to do that," said the Cat, "if you only walk long enough."
Your guide will show you the pathway to your ideal destination. It may be difficult, but it’s better than the alternatives. Don’t worry; you will not be the first or the last investor to be guided in this way.
Your guide will help you with a plan which, if you follow, will guarantee you results. There are no shortcuts or secret doorways, and it is up to you to take this guidance and set forth into, what for you, is uncharted territory. Nothing good will happen unless you act and gain momentum. Do whatever it takes.
Academic research that has been around since the 1970s is now gaining traction in the mainstream media. Investing in markets is best done by literally investing in the market. Forget the impossible needle in the haystack; instead, buy the haystack. Avoid any wealth manager who tells you they have the secret path to the needle. They don’t.
Information is easily available to investors like you and eking out even a tiny advantage is nearly impossible. Many investors outsource decisions to wealth managers (known as discretionary investment managers, or DIMs). There are a few DIMs who beat the market from time to time. Identifying a DIM in advance of their market-beating days is a fool’s errand. Do you classify yourself as a fool? No, I didn’t think so.
The big wealth managers and DIMs have huge advertising budgets and Siren-like voices. Everything on offer looks enticing and appealing. In Greek mythology, Odysseus told all his sailors to plug their ears with beeswax and tie him tightly to the mast as their ship sailed past the Sirens, to avoid being lured onto the rocks. Similarly, an expert guide can help you avoid any dodgy temptations.
Picking the right path is important, but so is the price of your investment journey. What are you prepared to pay? The challenge of fair fees and value for money is one battle you must win if you want future success.
If you invest in a stock-picking or market-timing active portfolio, the charges may be higher than you thought. An industry executive said wealth management has recently hit “peak gravy”, charging investors as much as possible while offering a mediocre investment performance in return.
Furthermore, applying the lessons of Moneyball leads Capital to be sceptical of anyone who claims that you get what you pay for when investing. In fact, data suggests the exact opposite is correct - you get what you don’t pay for. Stock pickers can end up offering an average investment performance precisely because of what they charge investors in their funds.
Charges are in the financial press and the regulator’s spotlight. The wealth management industry is moving with the times, albeit slowly. This is down to investors hearing the call for evidence-based decision making. At Capital, we have a client-centred approach which focuses on putting your interests first.
You knew what you needed to do but didn’t know how to go about it. Fortunately, your guide had the answers. Your guide discovered what it was you were after in life, drew up an action plan and shared it with you.
Nothing happened until you decided to accept the challenge and act. You followed the advice and tackled the challenges head-on and overcame them. You fought the multi-headed dragons, overcame the fee-hungry wolf, and sailed past the Siren calls of those who only wanted your money.
If you hadn’t met your mentor and guide, the outcome would have been different: the wrong destination at the wrong time, without the right results for you and your family. It would have been a disaster, with you unarmed and ill-equipped with no road to recovery.
As mentioned at the outset, investing is difficult and we all need a guide.
We live in a time of facts, evidence, data and science, and it makes sense to use this powerful force for good. Now is the time for intelligent investing, rather than hunches, predictions or crystal balls.
Evidence suggests you should buy a basket of the world’s most successful companies, rather than trying to latch onto so-called sure-fire winners.
If you would like to discuss your financial future and discover your path, contact Capital today and one of our guides will be pleased to show you the way.
At Capital you won’t be led up the garden path.