Supported by Greenhaven Road Capital, finding value off the beaten path.
Ted Seides has a podcast now. Podcasting truly is an embarrassment of riches. This reminds me of when I first discovered the pizza buffet as a teenager. I get my choice of all this?!?!
1/ Moneyball the shit out of this. When Moneyball was published I worked for a minor league baseball team. I read it and thought, that was a good book but it won’t work in any other sport. Sabermetrics was built on the fact that baseball has a lot of good data. Well, (again) I was wrong. Galbraith bought a soccer team, the Derby County Rams, and applied the Moneyball approach.
For starters, the actual purchase was Moneyball-esque. The team had been relegated to a lower league, the seller panicked, and Galbraith’s group swooped in. As the new owners, their goal was to return to the higher league because the sponsorships and earnings there were much higher than the lower ones. That meant figuring out what actually mattered. Galbraith (et al.) found that two things were really important:
- Time of possession.
- Shots on goal.
To increase those values it was better to pay more for the 8th, 9th, and 10th players rather for a superstar. Mix in the right culture (no easy feat) and coach (ditto) and you have a chance. “If you get the process right and you take enough shots on goal you should ultimately get the prize.” Galbraith says there’s a relationship between investing and sports and this is why. In areas with a healthy dose of luck, it’s better to focus on the process.
Post-college Galbraith saw this in his own career. “In finance and investing there are a lot of uncontrollable things and the only thing I could control was my work ethic.” He understood the two-jar model and did things that would increase the skill scores like; a Chase training program and working overseas.
It may be tempting to, follow the header, and ‘Moneyball the shit out of this’ but as we say, not so fast. When Michael Mauboussin spoke with Daniel Kahneman about big data they both noted that losses loom larger than gains. In Moneyballing terms, this means that people may lose job responsibility to an algorithm. Those losses “loom large” and managers need to be aware of this.
2/ Gambling in college. “College sports were really inefficiently priced. We used to bet on Utah State against Montana and with a little bit of homework you could get an edge.”
Galbraith’s college experience taught him to find less crowded ponds. This is what Ken Fisher says he tries to do for investments. Charley Ellis said “The secret to great success in business is to choose competition that’s not very good. The same thing works in sports, it works in lots of different things.” When Danny Meyer expanded his restaurant empire he did this too. The best NYC Indian restaurant had a low Zagat score and so that’s what he opened next.
Here’s how Nate Silver put it in The Signal and The Noise:
“However, when a field is highly competitive, it is only through this painstaking effort around the margin that you can make any money. There is a “water level” established by the competition and your profit will be like the tip of an iceberg: a small sliver of competitive advantage floating just above the surface, but concealing a vast bulwark of effort that went in to support it. I’ve tried to avoid these sorts of areas. Instead, I’ve been fortunate enough to take advantage of fields where the water level was set pretty low, and getting the basics right counted for a lot. Baseball, in the pre-Moneyball era, used to be one of these. Billy Beane got an awful lot of mileage by recognizing a few simple things, like the fact that on-base percentage is a better measure of a player’s offensive performance than his batting average.”
3/ Be different. “If you have the mean view you’re going to have a mean outcome. You can’t be provocative for provocative’s sake, but you do need to think outside the zeitgeist to where things could evolve to.”
This was my favorite quote because the advice to “be different” is common but it comes with the caveat Galbraith mentions.
4/ Argue well. “The better managers did want to hear the negative scenario. As a portfolio manager, I didn’t want my analysts coming in telling me nothing but the good news.” Good organizations allow for healthy arguments.
Beyond Google and the United States Senate, arguing well is part of what Ray Dalio and Bridgewater so successful.
5/ Be there. Galbraith (and others) own the Narragansett Beer company in Rhode Island. Beyond the enjoyment of owning a brewery, it’s been educational too. Galbraith says that owning this business has taught him lessons he wouldn’t have otherwise learned that have influenced his investment choices.
Galbraith has also seen this on a board with a business owner that asks different, diverse questions. There’s something to walking the walk that gives an experience others can’t, don’t, or won’t get. As Buffett said, “I am a better investor because I am a businessman, and a better businessman because I am an investor.”
6/ Writing as thinking.
“When I became a serious investor I found that having to actually put my thoughts to paper was an unbelievably powerful way of marshaling what the hell I was thinking.”
“It clarifies where true north is.”
“When I tried to organize my thoughts and put pen to paper, it forced my thinking to be more rigorous and it exposed gaps in my thinking and errors in judgement more readily.”
7/ Deep work. Galbraith’s covered a lot of ground in the investment world, working with many different people. He found that the most successful traders tend to be insular. “I think that is something that’s key to successful investing.” Look at Buffett in the HBO documentary he says.
Another way to frame it is to say that these people are doing deep work. Cal Newport defines deep work as “professional activities performed in a state of distraction free concentration that push your cognitive capabilities to their limit. These efforts create new value, improve your skill, and are hard to replicate.”
Deep work is to careers as weekly miles are to runners. If you allow too many others things; work, social media, junk food, to get into your life then you won’t put in the hours for the miles (or deep work).
Thanks for reading,
We’ve hit on soccer before on the blog. Anson Dorrance is the winningest college coach ever. There were bigger concepts behind Bill Simmons and Malcolm Gladwell’s discussion on soccer. If you liked this post you’ll like this paid newsletter. I write it too.