My last post discussed some of the similarities between Moneyball and passive investing. Since then I revisited my notes from Billy Beane’s talk and wanted to share another interesting point he made between the parallels of his profession and investing. If you have read or watched Moneyball it should be no surprise to you that Billy Beane does not watch Oakland Athletics games. Billy is a very competitive person and that competitive spirit carries many different emotions. Being the general manager, he has the power to make decisions at just about any time. If a player is having a bad day at the plate, he could easily pick up the phone and have that player taken out of the game. Billy realized early on that making knee jerk decisions based on performance was not the most rational approach to his job. He understood there was a scientific process in place. He knew players would have bad games, but over a long period of time (an entire baseball season) the players he selected to build his team would give him the best chance for success. He just had to let the process run its course and not interfere with it.
The same concept can be applied to investing. If you have a well thought out investment plan, you understand that some investments will have good days and some will have bad days. The key is to not make knee jerk decisions based on bad news or underperformance. Evidence shows that kind of behavior leads to making the wrong decisions at the wrong times. Just like Billy Beane allows his team to go through the ebbs and flows of a baseball season, you should allow your investment plan go through the inevitable gyrations of the market (rebalancing as needed, of course!)
