AFL vs. ASX
"Premiership Portfolio will save you money in ways you wouldn't believe. We haven't had to buy sleeping tablets since it was released"
- CEO of the Household, Sam's Wife
What does our great game, Australian rules football, have to do with finance, business, statistics and quantitative data? At it turns out...quite a fair bit indeed.
Moneyball, the best selling book by Michael Lewis, first introduced us to the concoction of sport and numbers back in 2003. Recruitment decisions were based on traditional ideas, gut feel and human biases. What Billy Beane achieved at the Oakland A's using mathematical models to value a player's worth took some time to gather momentum, but when it did, everyone was Moneyballing everything. So much so, that only a few years ago, a Melbourne based AFL club spent over $200,000 purchasing the intellectual property of the Boston Red Sox's quantitative player ranking system.
Although it's no Moneyball, my book Premiership Portfolio delves into the world of football and proves that if you have some type of understanding of our great game, you will easily grasp the basic concepts of finance. It wasn't until I interviewed AFL recruiters, list managers, ex-coaches and CEO’s, among many others, that I realised how deep the two industries are aligned. The common denominators are many, some are multi-layered and worth deep diving into in future blog posts, however, let’s keep it simple and take a surface view of my top five.
Results Based Industries
Both football and finance are results driven pursuits. Outcomes are clearly visible. In finance, it's daily. The stock market is open from 10 am to 4 pm. In football, it's weekly. The scoreboard stands still once the final siren sounds. Long term, professional fund managers are judged quarterly and clubs yearly.
Interpreting the results is the easy part, knowing how often to react to results is the tricky part. Not to name names, but what if a certain Melbourne club pulled the trigger and sacked their coach back in 2013 when a certain high profile individual asked for the coach to be sacked?Having a long term mind frame is very difficult, especially in football, and it's mainly because of the external noise.
It's Relatively Performance that Counts!
If the footballing gods had offered Richmond supporters 22 goals before the opening siren of the 1972 VFL grand final, my guess is they would have taken it. I certainly would have. Kicking 22 goals in a game of football is quite an achievement, but it wasn’t enough. Carlton banged 28 of them to win the premiership. 'Good' can sometimes not be good enough when you’re constantly competing against someone else.
So who does the average investor or professional money manager compete against?
Let me introduce to you the S&P/ASX 300 Football Club. This is your opposition as an investor and it’s damn hard to beat! Over a given period of time, if your returns don’t mirror or beat that of the overall markets, you lose. There’s a reason why it’s called the benchmark! The good news is that you can recruit yourself onto the S&P/ASX 200 Football starting 18, something I’ll touch on down the track.
You Need Talent on All Fronts
Ross Lyon once said, “I don’t want to be the best coach, I just want to coach the best players”.
You don’t have to be the best investor or an ASX Hall of Famer, but you do need to learn what makes a talented money manager, or the characteristics of a great investment.
How you go about identifying such talent? To steal a word from Collingwood FC coach Nathan Buckley, you need a “process”. In due course, I’ll take you through my ASX Draft Combine, and introduce the characteristics of a great investment.
Nathan Buckley's Favourite Word - Process
You can decide to wear the same underwear for the whole of September, but without coming across too dismissive to your superstitious beliefs, the truth is you have no control over outcomes on the football field or in the market.
The process is what you need to spend your energy on. It will maximise your chances of a good outcome, not only in football, but also when it comes to investing. Something I’ll be constantly referring to is Charlie Munger’s Mental Models - the most efficient way to make intelligent decisions, or simply put, how to think about thinking. It is your minds toolbox for making decisions. The framework for understand how the world around you works.
Process-orientated long-term investing is successful investing.
Hawthorn FC coach Alastair Clarkson has said its clubs that win premierships, not teams.
Recruiters bring the talent in. The list manager’s job is to keep the talent together. The role of all the coaches is to get the best out of the players on game day. The executives at the helm, the CEO, CFO etc, ensure the club can remain competitive off the field and the employees/volunteers keep the place running. Lastly, the players need to get the job done.
A similar approach needs to be taken with your finances. Getting on the right track requires a good team whose collective efforts are directed to one common goal – your financial security. Sensible and trustworthy advice on financial planning, insurance, estate planning and allocating capital into different assets classes in needed. Very few have the temperament to do it themselves. You don’t pull out your own teeth, you seek a dentists counsel.
The majority of people don’t usually walk into a book store. And when they do, they don’t tend to walk towards the personal finance section. This is why I want to use this website as an avenue to share what I have learnt from being a nerd, to save you time, effort and more importantly, money.