I recently had the good fortune to be invited by Platinum Funds Management to attend a presentation by former Australian Rugby Union player, Ben Darwin.
Since his career ending neck injury, Ben has established a sports analytics company and his anecdotes had interesting correlations with investing.
After 28 caps for the Wallabies between 2001 – 2003, Ben initially coached Rugby after his playing days ended. He observed in many sports that teams who relied on star players often failed.
Ben has come to believe great teams are more than just the sum of their individual players, great teams are the product of the linkages and connections within the group ie. cohesion.
Ben’s analysis of teams led him to establish a company, Gain Line analytics, that rigorously analyses and tests ideas, thoughts and beliefs related to sport.
He focuses on data analysis and quantitative research studying team “cohesion”.
His research has shown the performance of a team is directly linked to the cohesion of that team not the number of star players.
This explains why Queensland facing a team superior on paper will win more often than they should not because Queenslanders never give up (they don’t)It is because the players have come to know each other over many years, played with each other, understand each other and trust each other ie. a strong cohesive team.
Sport is a process. If the team follows certain processes, takes certain actions and plays consistently with little mistakes, works together as a team they put themselves in the best position to win.
Investing is also a process. You need to develop a process and methods, you need to continually look for improvement and test if those processes are still relevant or need some adjustment. You need the discipline to stick to that process even if leads to a single loss or a short period of underperformance, when you are sure that over the long term you have the right methods.
Value investing does not win all the time. Teams with high cohesion will not win all the time (even the Queensland Maroons or Melbourne Storm lose a few). A team with a high cohesion factor will win more than a team with low factor and win more often than they should when you look at the individuals.
Value investing wins over the long term, at times it will underperform the market index usually in a “strong” boom market. Not every value investment share pick makes money. However, over time when executed properly it out-performs the index with less volatility and when you add in the compounding effect over time it is the best way to grow wealth.