February 6, 2014 by Matt McCracken

I just saw the movie Moneyball this weekend and I have to say the filmmakers did a better than decent job of telling the remarkable story of Billy Beane and how his unconventional methodologies built a severely underpriced MLB contender. There was no possible way for them to fit the entire story into a 2 hour film. 

There is one quote in the book that has completely shaped my outlook of investing. Whether it be investing in stocks, bond, commodities or professional athletes, we all suffer form the same predicament – subjectivity. This curse is succinctly explained by the following quote from Michael Lewis:

The scouts saw in Billy Beane what they wanted to see in Billy Beane

This explains why every failed investor has ever failed. Investors “see what they want to see” in an investment. If we want stocks or bonds or real estate or commodities to go up, then we’ll be able to make a case for stocks, bonds, real estate or commodities going up. If we want to see a security fall, then we can easily make the case for that as well. Just as the professional baseball scouts misjudged the reality of Billy Beane’s ability on the baseball diamond, professional investors misjudge the reality of capital markets every second of every day. This explains how CNBC can parade an endless pairing of analysts on to their set who argue the complete opposite case from one another. Both are well-dressed, well-educated, well-thought of and capable of making sound arguments that stand in exact contradiction. (And once one of the two is proven right, CNBC can say “you heard it here first”).

“We see what we want to see”. When Beane was scouted by the professionals they couldn’t help but see a naturally gifted athlete but they failed to see that he had a temperament that had no business ever being in a batter’s box. When Beane became a GM, the fans and the pundits all saw a guy trying to buck an efficient system of judging baseball talent. But Beane knew the system was not efficient because it misvalued himself. The scouts, the fans and pundits (read Media) all saw what they wanted to see in Billy Beane as a player and a GM. But Billy Beane saw the truth. He is a master of objectively judging the reality of baseball talent.

The remarkable twist in the Moneyball story is terrifically ironic. Billy Beane’s success as a manager is at complete odds with his failure as a player. Coming out of high school, Billy Beane was a “can’t miss superstar”. The Mets drafted him in the first round assuming he would be in the majors far before their other first round pick Daryl Strawberry. While Billy Beane’s shear talent did allow him to eventually get in a few at-bats in the majors, he was largely a huge disappointment. He left the field to join the front office and made it his life’s ambition to figure out why players like himself failed while players that were far less gifted than him, such as his minor-league teammate Lenny Dykstra, went on to star in the “bigs”. (Interestingly, Dykstra was an incredible baseball player far exceeding everyone’s expectations but has failed miserably at investing and is currently running from the SEC and his creditors. He is the polar opposite of Beane.)

Ironically, when Beane took over as GM of the A’s, he was viewed as a “sure-flop” in exact contradiction to his playing prospects. He goes on to succeed wildly as a manager when everyone thought he’d fail and he failed miserably as a player when everyone knew he’d succeed.

For whatever reason, whenever I read this quote, the image of Jerry Jones, GM and owner of the Dallas Cowboys and antithesis of Billy Beane pops into my head. Jones consistently outspends his competitors while constantly underperforming them. For those who follow the Cowboys, it is easy to see how Jones “sees what he wants to see” in a player blinding him from reality.

The team won when Jimmy Johnson decided who did and didn’t play on the team. The same goes for Bill Parcels when he was in charge of doing the “grocery shopping” for players. But when Jerry Jones is making the personnel decisions, the team routinely fails. Here are a few of the real doozies:

  • When Jerry Jones drafted Quincy Carter, he didn’t see a slightly above average college QB who had a penchant for throwing the ball to the other team, he saw an athletic QB who would certainly be the second coming of Michael Vick.
  • When he drafted Roy Williams, safety from OU, he didn’t see a run stopping safety that always played at the line because he couldn’t cover his own mother in the slot, he just saw a hard-hitting DB who was bound to be the next Darren Woodson or Ronnie Lott.
  • And as legendary QB Troy Aikman’s career was nearing an end, Jones made desperate trades for speedy receivers such as Joey Galloway and Raghib Ismail not because he saw them for what they were, aging speedsters who could no longer get behind defenders, rather he saw his Cowboys copying the St. Louis Rams “greatest show on Turf”.
  • And I can’t even count the number of 6’2”, broad-shouldered, anglo-american Tight Ends that Jones wasted first round picks on to find a sure-fire replacement for Jay Novacek.

Jones is a textbook case of a failed investor, always chasing returns by copying others or desperately trying to find “lightening in a bottle”. And therefore, the Cowboys are essentially doomed to mediocrity as long as Jones is doing the shopping assuming he continues to “see what he wants to see” in a player rather than objectively judging talent.

I say all of this because we all suffer from the same lot in life in some varying degree. In our family, in our spouses, in our jobs and in our leaders, we tend to “see what we want to see”. And particularly when it comes to investments. We all want to rich or at least stay comfortable. So when some guy who is well-dressed, well-educated and seemingly well-thought of tells us some story about how X-investment will do Y we believe him because “we see what we want to see”. Unfortunately for many investors, that guy was wrong.


All the best,

Matt McCracken