I write to you from India. On the flight from the UK I watched the movie ‘MoneyBall’ in which the Brad Pitt character turns around a baseball team by picking players based on a variety of mathematical factors and by mining for data on all professional baseball players across the US. He looks for exactly the right mix of batters, fielders, runners to make a team which in composite will beat the baseball teams with far more money. Brad knows if they are to beat the best baseball teams, they cannot do so by simply trying to outspend them or mimic what they are doing.
His sidekick, a Yale economist, develops a computer programme to score all players. They scout and then hire a team. The uproar by the fans and the other colleagues is outrageous. They complain you cannot pick players based on the characteristics Pitt chooses. You have to use conventional wisdom they say. Yet, the team goes on to equal the record for number of consecutive winning games. This is a true story.
Before I knew anything about this story, I had asked the UK’s largest seller of private investor software, if they would create a piece of software for me based on my investing criteria. They could market it licensing my name and call it the ‘Alpesh Patel Special Edition’ of their main software. I knew if I was to beat the biggest fund managers, with their dozens of analysts, I could not do so by simply trying to outspend them. I could not do so by replicating their strategy. I had to look for their perceived strengths and outsmart them, turning those strengths into weaknesses.
You see the biggest fund managers are not now, nor have they ever been, very good. They are marketing machines. Statics show they rarely outperform putting your money in a passive index fund. The reason is they have so much money under management, because that’s how they earn money, not based on their performance. With so much money they can only invest in the UK’s largest companies. Moreover, with so much money, they have to spread those funds across so many of these big companies that they end up replicating an index like the FTSE 100. And then they turn that into a virtue, by measuring their performance relative to such an index.
So how do I compete with that? How do I compete without the analysts, and doing something other than investing in the biggest and best British companies?
So I developed some formulas, based on years of experience and eons of analysis. Not for me evenings out and holidays. Even on rare vacations I would be perfecting the formulae I would eventually use. My magnificent obsession. My nickname among my closest friends became ‘Alpy the Obsessed’.
No one stock I picked would be the best, but in composite my team of stocks, would outperform the biggest managers picking their BPs and Shells. I would ignore some of the criteria for picking stocks that conventional wisdom thought important, and add ones which my research showed would be good predictors. After all, I may not be a Yale economist, but I am an Oxford one. I would turn the perceived strengths of the big managers against them, and my perceived weaknesses in my favour.
I would not outspend them with an army of analysts, instead I would use computing power. The great leveller. I’ve been investing since the age of 12, so would use my experience in knowing what to look for – I had in my blood, what they were paid to do. I saw as a vocation, what they saw as a job. I live and sleep this stuff, they clock off. I would X-ray and dissect thousands of stocks. I would use my weakness of being small as my strength to slay giants. I would not have billions under management, so I could pick smaller companies, and fewer stocks. My performance would then not simply track an index.
I did not have a brigade of assistant managers to meet the companies and the Boards I would invest in, so I would have to make sure I analysed their financials in great depth.
The result? In 2004, we launched the Alpesh Patel Special Edition of Sharescope. It has since then year on year beaten the biggest and best fund managers in the UK. It has trounced them in fact. Not every stock has been brilliant. But in aggregate, the portfolio as a whole won.
How does the story end? In the film ‘Moneyball’ the Brad Pitt character is offered a multi-million pound contract to play for one of the big teams. He turns it down. He wants to change the game of big money baseball management forever. How does my story end.? You can watch the movie Moneyball in the cinemas. A ticket costs around 10 pounds. You can buy my software from http://www.sharescope.co.uk/alpesh – it costs around 100 pounds a month. You can see on there my annual performance track record. I could have worked for Goldman Sachs. I prefer not to. I do not charge you 2% to manage your money. You have the software and the power in your own hands. Has the game of big money management changed forever? You decide.
I’m still waiting for Brad Pitt to play me in the story of my Moneyball.