The Impact of Moneyball Strategy Across Different Sports and Financial Markets

During their recent episode, Taylor, Carlisle, and Buck discussed The Impact of Moneyball Strategy Across Different Sports and Financial Markets, here’s an excerpt from the episode:

Jason: No, it’s the best. I was given other examples like [Jake laughs] Moneyball is the best, but people forget that. It’s about the Oakland As. And then Theo Epstein took those ideas and went to the Boston Red Sox and won the first World Series in 85 years. But then what I point out from there is the owner of the Red Sox at the time was John Henry of Fenway Sports Group. And John Henry’s a trend following managed futures guy, where he understood statistics and probabilities and he was trading over 60 to 80 markets, especially during the great eras of 1960s, 1970s and 1980s is how he made his wealth. But then in 2010, he bought Liverpool Football Club.

Most people don’t like to talk about soccer, because it’s un-American. I get it. I was a soccer player and I get. It’s the most boring sport. Everybody hates it. But John Henry of Fenway Sports Groups buys Liverpool in 2010, and they’re trying to restore this historic franchise. And in 2015, they hired Jürgen Klopp from Germany, who’s one of the greatest football managers of all time, but he’s known as for heavy metal football, they call it. Like, all-out attack. And so, they’re scoring lots of goals, but they’re getting a lot of goals scored against them.

But then 2018, they’re like, “We need to shore up this defense.” So, they went out and got Alisson Becker from Brazil as goalkeeper, at that time, the best goalkeeper in the world, and they got Virgil van Dijk, the best defender in the world from the Netherlands, and he played sweeper for them. So, now they shore up their defense in 2018. So, going into 2019, they end up winning the Champions League which is the most prestigious club trophy in all of soccer. And then the following year, they won the English Premier League for the first time in 30 years.

So, once again, it was like offense, plus defense wins championships, but we all herald offense way more. They use that Moneyball approach, although I think it’s a lot harder to use a Moneyball approach in things like soccer world. Baseball is awesome, because you have all those discrete events. Basketball, they’re getting a little bit better with all the statistics.

But actually, at the event, I was talking to Joe Peta, who’s a former baseball and sports gambler that used a lot of those theories to measure hedge fund traders, especially in market neutral long short hedge funds, like 0.72. He was there. And so, you have a lot of discrete events with those managers, so you can derive how much alpha they’re using versus the variance of the markets.

It’s just interesting how these things have truly taken off. But he was telling me that he finds even at some of the biggest hedge funds in the world, they’re not amenable to these ideas still too. They still feel like, “This guy, I know he’s going to come back.

Jake: Hot hand.

Jason: He’s a good guy.”

Jake: Heuristics. Galore.

Jason: Yeah. Or, it’s even worse is the intangibles like Toby was talking about from Moneyball is, they used to talk about, “Oh, this guy’s handsome or his girlfriend is ugly.”

Tobias: Good face.

Jake: Oh, yeah.

[laughter]

Tobias: Yeah, ugly girlfriend. No confidence.

Jake: No confidence. [laughs]

Jason: Yeah. That’s just crazy. But he was telling me how that still happens at some of the most quantitative hedge funds in the world. It’s crazy.

Tobias: I’ve been watching Full Swing. And they do the same thing in Full Swing when they choose the Ryder Cup. They take 12 players. The top six players, they have the best score over the season. Then the coach gets to or the captain gets to choose six other players. And so, they’re showing Justin Thomas and somebody else, lesser-known player. Sorry, I can’t remember his name. I’ve only seen Part 1. So, I don’t know what happens. [laughs] I haven’t seen Part 2 yet. [laughs]

Jake: Good story, man.

[laughter]

Tobias: It doesn’t matter– [crosstalk]

Jason: You trailed off in the middle there. But no,– [crosstalk]

Jake: Yeah.

Jason: It’s gets better. That’s actually a great show. But it is fascinating. Like, yeah, the objective versus the subjective of half and half. And then it’s the other guy, he’s basically had the captain always stay with him on tour and everything. They were like best friends. He’s staying in his house, rent free.

Tobias: Yeah. [crosstalk] Justin Thomas does that. Yeah.

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