Merely identifying undervalued stocks is no longer enough. It’s an approach that can be easily copied and rendered useless by its ubiquity.
Growth–oriented investment philosophies offer a way out of the logjam. This is the contention of a new sports book written by Ben Lindbergh and Travis Sawchik called The MVP Machine: How Baseball’s New Nonconformists Are Using Data To Build Better Players.
For fund managers, this is the book’s essential message: “Next-generation technologies and analytics radically transform top-tier talent development and technique.”
Here is an excerpt from the Michael Schrage article published in the Harvard Business Review:
Gut feelings aren’t data. Quality data deserve deference; personal experience does not. As Lindbergh puts it, baseball’s most successful franchises commit to acting on their data and analytics. The data’s not there to justify or ratify existing decisions. Data must be actively and measurably used to learn what’s better or best. Analytics should clearly impact game-day decisions and choices. The Trevor Bauers aggressively seek out new data to drive their improvement. If granular data isn’t continuously driving team and player performance development, something is wrong.
“This is a new phase of analytics,” says Lindbergh. “Describing the difference between Moneyball [published in 2003] and us is like describing the difference between a value stock and a growth stock.”
He argues that today’s high-performance talent markets make Moneyball’s buy-and-hold strategies inferior to analytic augmentation. Where earlier sabermetricians combed stats to spot player value inefficiencies and mispricings, “that strategy soon got co-opted by every other team.” And, while assembling portfolios of underappreciated talents worked as a buy-the-numbers transaction, it didn’t as sustainable growth-oriented investment.
Moneyball 1.0’s success did profoundly shift major league baseball’s analytic investment focus, however. MVP’s 2.0 approach celebrates human capital’s cultivation over its acquisition: improving underdeveloped players is increasingly a better bet than identifying undervalued ones. More importantly, says Lindbergh, growth-oriented investment philosophies are enormously appealing to players who, for both personal and professional reasons, want to become more valuable.
“Teams that have invested in development have made themselves more attractive to players,” Lindbergh notes. “You will have a better shot of attracting talented and motivated players to your team.”