Investors, Take A Lesson From Billy Beane: Play Moneyball by Benzinga
At long last Major League Baseball returns as the single best sign that spring is here and summer is close behind.
As the season starts, virtually every baseball fan cannot help but daydream about jogging onto the field, making the spectacular catch or hitting the walk-off game winning home run. (And the crowd goes wild….!) But fans–even six year olds–know it’s just a fantasy: almost nobody has the skill set required to play major league sports.
Unfortunately, the same is true about major league investing, but few seem to recognize that. Many, if not most, people approach the markets with the dream of being the next Paul Tudor Jones, Jesse Livermore or Ray Dalio, but the simple truth is that the pro skill set is extraordinary and simply not obtainable for most of us.
Gates Capital Management's Excess Cash Flow (ECF) Value Funds have returned 14.5% net over the past 25 years, and in 2021, the fund manager continued to outperform. Due to an "absence of large mistakes" during the year, coupled with an "attractive environment for corporate events," the group's flagship ECF Value Fund, L.P returned 32.7% last Read More
And yet billions of people around the globe insist on trying to become short term traders of stock, bonds and commodities. Wake up folks: it is as hard to be George Soros as it is to be Mickey Mantle. Still, people can be forgiven for chasing the mirage of short term trading dominance.
There are ads and pitches everywhere promising you a high percentage of winning trade ideas and nearly foolproof methodologies.
Others offer to teach the ancient secrets of trading to help you unlock the good life.
You can find all sorts of ways to read lines, angles, candles, patterns and indicators that will help you power your way to profits. If you just learn to interpret them correctly you too can be a stock market master.
Of course if you could run like the wind and hit a curveball 420 feet you could start in center for the Orioles and would not have to worry about this stock market stuff. Baseball players fail to make the majors because they cannot hit the curve or consistently throw a slider for strikes. Those skill shortcomings produce an ex-minor league player rather than a major leaguer.
It’s the same for investors, though instead of a swing and a miss, or walking in a run, individual traders chase the hot stocks and over trade. As a result they earn far less money that they should over time. Countless studies have explained the why for the poor returns and yet the vast majority of retail traders make these mistakes with remarkable consistency.
Thankfully, the stock market isn’t limited to 30 teams with 25 players each. Just because you’ll never be a major league pro, you’re not trapped in the stands with a cold beer and a hot dog, watching the best play the game. You can earn solid long term returns simply by adjusting the way you approach the markets. Forget trying to be a successful short term trader.
You have better odds of starting for the Yankees than you do of enjoying a career as a day trader using some system you bought and a discount brokerage account. If you have a family, a career and other interests your chances are approximately nil. Stop doing what everyone else is doing. You are not going to have any more success swing trading Apple Inc. (NASDAQ:AAPL) [FREE Stock Trend Analysis]) and Google Inc (NASDAQ:GOOG) than everyone else and ultimately it is a losing game.
Quit chasing tips, headlines and sound bites. Quit trying to predict the market because you can’t do it. No one can with any degree of reliability. Research and real world results have shown that individual investors who adopt a deep value approach and a private equity mindset can earn high consistent returns.
A patient approach devoted to buying stocks when they are unpopular and trade for less their asset value, and then selling them when their price recovers has worked since man developed the very first market. Billy Beane proved it works for baseball too. Focusing on undervalued stocks may not make you famous, but your net worth should grow and allow you to achieve many of your dreams.
Except for playing center field. That’s not going to happen.
Best of all this approach allows you to turn off the computer, close down the screens and go watch a ball game.
© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.