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Moneyballing Wealth Management: Billy Beane’s 7 Tips for Financial Advisors

The Fearless Investing Movement and the advisors who lead it are all about putting to rest the old subjectivity of the past. We know that objectivity matters. Math matters.

And no one knows more about ushering objectivity and data into an industry that needs it than Billy Beane, Executive Vice President of Baseball Operations and part owner of the Oakland A’s, who was the central figure in the best-selling book and award-nominated movie Moneyball.

Beane uses math to turn underdogs into winners. And that’s also what financial advisors do every day. It’s what you do for your investors.

At the Fearless Investing Summit 2021, Beane shared his strategies and processes for changing jock-led major league baseball into a business for big data nerds. We’ve taken notes from Mr. Moneyball himself and his stretch of success to deliver these seven ace tips for advisors that will keep you ahead of the curve in an ever-evolving wealth management industry.

1. The Old Way Isn’t the Best Way

For over 150 years, baseball had been using scouts and their subjective analysis to determine what attributes made a player great and which players had the most potential. This is how some advisors still operate today. They ask clients how they “feel” about risk and build an entire portfolio based on the answer.

Beane threw out everything except the data. He wasn’t the first to think of it, but he was the first to implement it. The old boys club of former players who were leading all the major teams lost their minds in the early 2000s when Beane’s moneyball approach began. Although, as Beane points out, there are only two former players still leading teams in today’s MLB.

The old way of assessing risk leaves clients fearful, and it doesn’t work.

Just because you’ve always done things a certain way, doesn’t mean you should.

2. Looks Aren’t Everything

Traditionally, baseball players who fit the ideal height and weight, just like Beane when he was drafted out of high school, were pushed to the top despite lackluster stats.

“Data and information were ignored,” Beane said. “Eyes and guts were making decisions and not brains.”

When every other team was gunning for overvalued and/or mispriced assets, the A’s took advantage and found the players that had the right fit with the data. Ultimately, what Beane did with players, advisors do with stock: Trade for future performance and not past performance.

And here’s the key for advisors: Just because somebody is a certain age doesn’t make them a “conservative” investor. Or a “moderately aggressive” one. Time horizon and risk capacity can change, but risk tolerance is highly personal.

Everyone, including baseball executives, advisors, and investors, want to be the ones to find the next big thing. But you can’t rely on looks to find it.


3. Champion a Culture of Change

Several books had been written about how baseball was prioritizing the wrong stats long before Beane decided to change how his organization operated. But those books were from outsiders who had never played the game, so no one in power took them seriously.

“All of those ideas we used were from other people,” Beane said. “All of it was public information. Anyone could have done it. Our culture allowed us to do what we did.”

Before moneyball took off after the success of the A’s, led by Beane, only 2-3 players from each year’s MLB draft dating back to the 1960s when it began would make it to The Show. Beane figured that making any change wasn’t going to make things worse.

“We couldn’t be more wrong than we have been for the last 40 years,” he said.

Beane changed the entire mentality of the A’s front office from one that relied on looks and gut feelings into a data-driven machine. That change swept through the rest of major league baseball, where today an average of 13 players from each draft make it to the top level.

But it was an entire culture shift, just like the one the wealth management world has been undergoing. Well, at least for the advisors who have embraced a culture of change.

“And that’s what the book is about: Taking information that has been out there and our culture allowing us to do it,” Beane said.

4. Use Data Ruthlessly

Bucking tradition earned Beane a lot of criticism. And even when Beane and the A’s became the talk of baseball, his approach was considered “risky.”

“But it was the complete opposite,” Bean explained. “We figured we had the answers to the test. We could take an objective approach or we could take a subjective approach. It seemed foolish to take the subjective approach if you, in fact, had the data to give you the answers.”

It’s the same for advisors. Instead of stereotyping investors based on their age and assigning them subjective labels, we can quantify Risk Alignment and use that data to empower fearless investing. When building a blueprint, we use feet and inches. When building a baseball team, we use on-base percentages. When building a plan for clients, we use the Risk Number®.

Using “data ruthlessly,” as Beane said, creates transparency in your decisions that advisors can show to clients and even prove for compliance if needed. It can also set you apart.

For Beane, the release of the book somewhat leveled the playing field for all the teams. They now saw the formula. But they didn’t all use it.

“Before, ex-players like myself could always say ‘That’s the way we’ve always done it’ or ‘I’ve got a gut feeling’. There were excuses for bad decisions,” Beane said. “Our advantage was collecting the data and using the data ruthlessly.”

5. Don’t Get Emotional

Sports and wealth management are alike in that when things start getting rough, people get emotional.

But staying disciplined is key in baseball and in investing.

“We knew we weren’t going to be right all the time,” he said. “But if we were disciplined in our implementation of data and making decisions, similar to Warren Buffet, over the course of a 162 games, that discipline would allow us to win more games than our competitors with less money. And we did. And it was that discipline to numbers that has allowed us to do that today.”

When advisors aren’t afraid to talk about risk, investors aren’t afraid to make the right decisions. And when equipped with technology to keep track of an investor’s market sentiment, you know just when to keep clients’ heads in the game as well.

6. Never Stop Evolving

After Moneyball came out and all the other teams scrambled to start following the A’s lead, Beane and his team evolved their process.

“In any business, there’s a certain comfort that comes with success without analyzing, and you get behind the curve,” Beane said. “As soon as you think you got it nailed, someone is passing you.”

For the A’s, this meant figuring out the gap between their process and results, such as how one play can affect a hitter’s batting average and pitcher’s ERA but not the center fielder who made an amazing catch.

For advisors, this means actively pursuing even more new ways of doing things so that you aren’t reacting to everything happening around you. This is often how advisors get complacent and lose clients.

7. Hire the Right People

When Beane committed to making the change to data-driven decisions, he needed the right people around him who “could do math, who enjoyed math, who could organize 150 years worth of data in the form of statistics.”

Advisors need the same. Your time is best spent helping your clients. Finding partners like Nitrogen who can help you organize the data and make it visually appealing and easy to read for your clients can be a game-changer, and we’re honored to play a role in your success.

“Tied for the best business decision I ever made wasn’t any player trade or transaction I made; it was who I hired,” Bean said.

On Deck

Mr. Moneyball really brought the heat at Fearless 2021. Stay fired up about fearless investing and register for the Fearless Investing Summit 2022 to get a head start on next year’s event.

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