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Moneyball Gameplan: How to use the deluge of data for smart stock picking


Michael Lewis is one of my favourite authors. And
Moneyball, also made famous by a film starring Brad Pitt, is a classic in its own right. The story revolves around Billy Beane, an oddball character, who is appointed as the coach of Oakland Athletics, a lowly placed baseball team. Beane has a very different notion from other coaches about how to value a player, and instead of following the traditional wisdom of betting on those players who have a great technique or look good while playing, he focuses on data about players.

Beane started looking for specific skills and abilities in players to fit the purpose, instead of paying top dollar for getting some of the top players in the league. The story goes on to document the triumph of the Oakland Athletics under Billy Beane.

The whole idea of narrating this story today is to highlight the simple fact that like in baseball, or any sport, using data instead of widely held beliefs among professionals, are better for decision-making and subsequent success. The story also narrates that, outsiders to the system, Beane and his teammate data statistician with zero knowledge of baseball, can actually bring in a fresh perspective that insiders lack, because they are too used to doing things in a certain way.

Now map it to our investing world, and you will realise that very few small investors in India actually use data or know how to use them. They still rely on tips from friends, and increasingly from random people on social media! The main reason for that is years back, data was hard to get and there was no systematic way of getting and using it.

Today, things are changing. With the advent of social media, fintwit (in some parts), forums like ValuePickr help bring in scuttlebutt data from across the country to the small investor. Sites like screener, chartink,
investing.com and others have democratised access to both fundamental data and technical charts. Trendlyne, Researchbytes and others are doing a great job in bringing concalls to all.

So, very quickly, data access is being completely democratised for free or for a small fee. The edge that large institutions used to possess are diminishing. Now, with Covid, even AGMs are being held online, again greatly enhancing access.

So, here are my suggestions on how to go about the investing process in this new environment:

  • Understand the business and the industry you are planning to invest in. You should be able to explain to a layman in simple words what the business does to make money.

  • Read the last 2-3 years annual report. Start with reading the management discussion and analysis section and the director’s report section.

  • Go to screener and look at the last ten years financial results. Focus on a few things to start with: revenues, margins, profits, ROE, ROCE and debt-equity. See how these have changed over the years.

  • Go to trendline’s channel on YouTube or Researchbytes and listen to the concalls for the last 2 quarters and maybe for 1 quarter a year back. If you like reading transcripts, tikr.com seems to have them. They are also available on the company websites also at times.

  • Go to BSE or NSE website and look through all corporate announcements or investor presentations by the company.

  • Have a written down investment policy as if you are running a large investment institutional setup like a mutual fund. Having clear rules for how many stocks you will buy in the portfolio, what will be the minimum and maximum starting allocation for a stock, what is the risk management policy you will follow, how you will prevent catastrophic loss, when you will sell etc are all things you should write down and follow. Once in a while, you should review your rules and update them based on your real-life experience.

If you follow a systematic, data-oriented, disciplined approach to investing, you can reap far better and longer-lasting rewards than someone who is buying and selling on Twitter tips.



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