When I was in line for my morning Starbucks coffee today, I overhead two men raving about how amazing the Blue Jays have been doing this season – and how the current buzz over their winning streak was reminiscent of their childhood (since the Jays haven’t made the playoffs since 1993 - currently the longest playoff drought in Major League Baseball, sigh).

 

So why the sudden pick up after nearly a generation of being, well, horrible?
The Jays were busy during the offseason making some major changes to their portfolio – making big bets, interesting trades and focusing on high value players; a big change compared to last year when only two or three spots changed hands (this year was a huge turnover for the franchise with changes in the outfield, infield, bullpen and starting rotation). Some may say that the Jays have bought their way to the top with some big names, while others like to believe that management took a Moneyball approach to crafting the 2015 roster.

 

Some of you may have read the book, Moneyball: The Art of Winning an Unfair Game by Michael Lewis (or you saw the movie with Brad Pitt & Jonah Hill like I did), about the Oakland Athletics baseball team and its general manager Billy Beane. The focus of the book is the team's analytical, evidence-based, sabermetric approach to assembling a competitive baseball team, despite the fact that Oakland had little money to spend (i.e. $40 million vs. $126 million for the New York Yankees).

 

Sabermetrics is the empirical analysis of baseball, especially baseball statistics that measure in-game activity; so for example, Beane looked for ballplayers who created runs based on the theory that runs win ballgames, instead of focusing on obvious athletic ability, which is what everyone else was doing. So now, teams that appear to value the concepts of sabermetrics are often said to be playing ‘Moneyball’ – a concept that has changed the way many major league front offices do business (i.e. the New York Mets, New York Yankees, St. Louis Cardinals, Boston Red Sox, and the Toronto Blue Jays - to name a few - have hired full-time sabermetric analysts).

 

I bet you can already sense how this pertains to investing - think of your portfolio like a team roster. Sure, you can spend all of your money buying big ticket, over-valued companies (which may do well for you in the long term and surely have a home within your overall portfolio) but the notion of value investing is one of our core principles to building a sound portfolio – and it’s the basic concept of trying to buy something for less than it is worth – i.e. the player who can create the most runs rather than the one who runs the fastest.

 

Value investing is the strategy of selecting stocks that trade for less than their intrinsic values – i.e. actively looking for stocks we believe the market has undervalued (because the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company's long-term fundamentals). The game of baseball is all about the bases and at the root of the game, getting on base should generate more points to win - just like generating more cash/income/growth will add to your wealth – which is also why value investors will typically select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields. I think I’ll go look for my circa 90s Blue Jays t-shirt and see if it still fits – something tells me I’ll be needing it soon.