Moneyball : the Art of Unfair Game

Moneyball : The art of Unfair Game

What do trading and baseball have in common?

What’s the Story?

Billy Beane was once an All-Star prospect, as remarked by a scout “a player you could dream on”, but life is what happens when you are making other plans. Billy was not really successful once he was scouted and after bouncing around the majors and the minors, he quit at 27 to be a scout and went on to become the GM of the Oakland A’s.

As a believer in science and systems, Billy challenged the conventional wisdom and changed the way to analyze the game and players. He chose to look at it rationally from an outsider’s point of view and brought in a Harvard Graduate, Paul DePodesta who was fascinated by irrationality and opportunities it created in human affairs.

Why most traders and fund managers are not able to perform better consistently?

Managers in the real world tend to pick a strategy that is less likely to fail rather than one which is more efficient. If Billy had done the same, Oakland A’s might not have shown such a performance. Instead, he along with Paul used the statistical analysis to evaluate the performance of players rather than using the opinion of scouts, thus removing from equation any intuition and bias. This is the requirement of the financial markets specially seeing the recent financial crisis and current market scenario.

If everyone is looking at markets in the same way, they are bound to make similar decisions and those with big pockets will win most of the time. We need to change the way we look at markets. One strategy would be to change the way Indices are weighted. I recently came across a company, Claymore Investments* which uses the financial statement data of a company to calculate stock weightages in the index.

Claymore offers an active management strategy with the highlights of a passive investment: lower turnover costs and transparent rules-based selection, while retaining high investment capacity. By using these...