Moneyball: My Favorite Investment Book

My all-time favorite investment book isn't One Up On Wall Street, Black Swan or the Intelligent Investor. It's Moneyball written by Michael Lewis. Michael Lewis (who not coincidentally has written a great deal about Wall Street as well) wrote #Moneyball about the manager of the Oakland athletics, Billy Bean and dubbed his smart and winning philosophy “Money Ball.”

For most of their history, the Oakland Athletics have operated at a severe disadvantage compared to their American League rivals like the Yankees and the Red Sox. Their total team payroll is often a fraction of those teams. And, for years, their performance lagged behind as well.

All that changed in 1997 when Billy Beane took over as the team’s General Manager. Essentially, he took a disadvantage and turned it into an advantage. He couldn’t afford the expensive free agents the Yankees and Red Sox were always fighting over, so he got smarter. He learned to underpay for underrated players rather than overpay for all stars.

Beane's use of a new generation of statistical measures, or metrics, to build a competitive advantage over teams with higher payrolls. Analyst Bill James made a compelling case that too much attention was paid to stats like batting average and runs-batted-in (RBIs), and not enough to lesser-known stats like on-base percentage and slugging percentage. If a player got on base more often than another player with a higher batting average simply because he was more patient and drew more walks that, in the long run, would contribute more to winning. So Beane stacked his line-up with players with a slightly higher on-base percentage and over the course of a long season that small advantage compounded and translated into a poorer team significantly outperforming many teams with higher payrolls.

Millennials (and Gen Xers to an extent), should adopt a Money Ball approach to investing and building wealth, and to life. Because it's the small differences that, over time, will give you an advantage over others (and over your old self as well). They are easy to overlook and may seem insignificant but these “daily disciplines, habits and routines will, like money, compounded and yield huge results.