Moneyball is one of our favorite movies of all time. The true story of Billy Beane (played by Brad Pitt) sticking his neck out to manage the Oakland A’s in a way never seen before is inspiring and thought provoking.
The concept was to put together a baseball team based on evidence instead of the eye test, hype or the immeasurable skill of the scouting staff. By focusing on a team of players who had exhibited measurable and impactful averages in boring areas such as on base percentage, they felt they could stack the odds in their favor to achieve a positive outcome. The strange thing was, those players typically cost a fraction of the marquis, franchise players. As the Oakland A’s payroll was 1/3 of many of the big market clubs, this approach made quite a splash in major league baseball.
To us, this looks like more of a Moneyball stock market than it has been for a long time. Prior to 2022 the US market was dominated by 5-star players. The clubhouse philosophy that won the day was that of the New York Yankees; overpay to get the biggest names in the game and hope they keep producing. At the beginning of 2022, this changed.
There are a few Moneyball concepts that we are leaning on today to position ourselves in this challenging environment.
- Price Matters – overpaying for a great company doesn’t make it a bad company but may make it a bad investment. The price you pay is a key factor in successful investing.
- The overall quality of the team is more important than the quality of the star player in most cases. In investing, this relates to effective diversification. Finding opportunities outside of the recently successful large US stocks is important. Finding business that fit together in an effective portfolio helps to manage risk and increase the odds of a favorable outcome at the same time.
- Consistency wins over time. Getting on base consistently wins you a lot of games. Dividend paying stocks, Infrastructure assets, bonds are all boring but critical players in driving the success of a portfolio.
We will continue to use these, as well as other long-term focused strategies to manage through the ups and downs of the markets.
Is inflation our biggest enemy?
According to this 2022 Fraser Institute Research Bulletin Canadians pay a hefty piece of their income pie in taxes each year. In fact,
- the total tax bill, which includes all types of taxes, has increased by 2,440% since 1961, and the tax bill has grown more rapidly than any other single expenditure item.
- Taxes have grown much more rapidly than any other single expenditure for the average Canadian family: from 1961 to 2021, expenditures on shelter increased by 1,751%, clothing by 643%, and food by 790%.
Perhaps we should be teaching our children more about tax in school!
What happened and what we need to watch going forward is summarized in this video by Jurien Timmer of Fidelity Investments.
As always, if you have any questions or comments, please reach out.