Finding the "Winning Story"
The best story may not be the one that brings the best outcome
The best story wins. Not the best idea, or the right idea, or the most rational idea. Just whoever tells a story that catches people’s attention and gets them to nod their heads is the one who tends to be rewarded.
-Morgan Housel, Same as Ever: A Guide to What Never Changes
The current book on my desk is about a sad-sack baseball franchise. For years, it was the laughingstock of the MLB, and its owner was infamous for being a cheapskate.
And yet, with some fresh faces in management and a new approach, it used novel analytics, player evaluation, scouting, and development to engineer one of the most remarkable turnarounds in baseball history.
You have probably assumed that I’m reading Michael Lewis’ Moneyball , but that isn’t right. I’m reading Jonah Keri’s The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team from Worst to First. It profiles how a new ownership group turned the Tampa Bay Rays from the league's punching bag into the 2008 American League Champions.
The dynamic between these two books is rather fascinating. Both are about the same subject: notoriously cheap baseball franchises that used out-of-the-box thinking to compete with the nine-figure payrolls of the Boston Red Sox and New York Yankees. Two key differences exist between the two books and the teams they discuss.
Moneyball is widely popular. It has sold well over 1 million copies, was made into a movie, and was nominated for six Oscars. “To Moneyball something” has become a colloquial term for taking an unconventional approach to a problem guided by data and analytics. By comparison, The Extra 2% didn’t even crack the top 15 nonfiction books on the New York Times bestseller list.
Ever since the season Moneyball was based upon, the Oakland Athletics haven’t made it out of the 1st round of the playoffs. This year, they played their last game in Oakland and will move to Las Vegas. By contrast, the Rays went from a team the league considered dissolving to two World Series appearances.
What I find fascinating is if we were presented with the choice of reading “how a cheap baseball team tried some innovative ideas and got a few playoff appearances out of it” and “a cheap baseball team tried some innovative ideas and went to two World Series as a result of its actions”, I think we would all choose the latter. Chances are, we could translate a few more insights in the latter to our everyday lives. And yet the world decided that Moneyball was the go-to tome of an underdog team defying the odds to tackle the Goliaths of the MLB.
The difference? With all due respect to Jonah, Michael Lewis was a more established author and writes better prose. Lewis’ book was also a few years earlier.
This phenomenon is prevalent in investing and investment writing. We should all be aware of it when making investment decisions. All too often, who sends the message, how it is crafted, or when it is delivered is far more important than the message itself. Being able to separate the message from the source is a critical skill for all investors to hone over time.
This is a topic I think about a lot and is the core foundation of this newsletter. A select few stocks get the lion’s share of financial media attention. Some of them merit such attention, while many others don’t. Financial media can have a wandering eye (nuclear energy stocks are having a moment), while others are coverage staples (automotive manufacturers). These aren’t topics of conversation because they are the absolute best stocks in which to invest. Rather, they are the topics of conversation people actively seek out.
Let’s use Dorman Products (NASDAQ: DORM) as an example. By any measure of investing, Dorman has outperformed Ford (NYSE: F) or General Motors (NYSE: GM) on a total return basis over one-year, three-year, five-year, ten-year, twenty-year, or longer time horizons. I can’t think of a world where an individual investor would have been better off investing in Ford or General Motors instead of Dorman.
Despite Dorman being a better investment for decades, it lives in relative obscurity. You could easily argue that aftermarket auto parts should be in the same industry as Ford and GM, but only four analysts have stock ratings with price targets compared to the 25+ that cover Big Auto. It isn’t just the analysts, either. According to Moz, a search engine optimization tool, the keywords “ford stock” and “GM stock” have search volumes 500 times that of Dorman.
In a world where clicks are more important than alpha, content creators are much more incentivized to craft a narrative around why Ford or GM are great investment ideas.
For investors and consumers of financial media, determining between what is for clicks and what is helpful advice goes back to honing one’s ability to filter out the signal from the noise. Often, the best investments one can make for long-term wealth building don’t have as compelling a narrative behind them.
After all, we would all much rather own a Tampa Bay Rays-type investment rather than one closer to the Oakland Athletics.