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Am currently reading ‘The MVP Machine’. Very interesting book that has lessons for investing. The ‘Moneyball’ approach in baseball involved buying ‘statistically cheap’ players. But because they became easy to identify quantitatively, the process was quickly copied...
This somewhat removed the inefficiency. A better approach began to take form: find players that have the potential to be much better if developed properly, but that don’t ‘screen well’ initially...
In the past, ‘evaluating was way ahead of developing’. The most innovative GMs started ‘developing’ just as everyone else was focusing on Bean’s ‘evaluating’ approach. The same thing has happened in investing...
First, people screened for things that were statistically cheap. They outperformed. They were copied. There were fewer actual statistically cheap things. So some forward looking investors started buying things that screened as higher quality...
They outperformed. They were copied. That’s sort of where we are today. Now some forward looking investors are trying to find things that don’t screen like quality, but actually are (or will be). As a result, they’re missed by other investors
So an important question for fintwit:
What are some of the reasons why a quality company might not initially screen as such? Also, what are some of the traits that help identify something that's becoming higher quality but not yet there?
What are some of the reasons why a quality company might not initially screen as such? Also, what are some of the traits that help identify something that's becoming higher quality but not yet there?
