🐵 Monkey Business

There was an interesting point made on the Wharton Moneyball podcast last week. If you aren’t familiar, it’s basically the Moneyball book but updated weekly and run by four Wharton Business School professors, one of which is Cade Massey who studied the NFL draft with Nobel winner Richard Thaler.

Professor Massey said to guest Harry Pavlidis:

"Jeff Luhnow builds this thing out of nothing in Houston then a few years later his top two lieutenants move over to the Orioles...Luhnow's biggest challenge isn't developing players, it's developing executives."

Luhnow pioneered the Houston Astro’s turnaround and was recently featured with Daryl Morey in an article in the Wall Street Journal.

What the Moneyball professors and the Moneyball practitioners (like Luhnow, Morey, etc.) do well is find edges. They find more ‘bang’ for their ‘buck’. Moneyball started with the realization that what mattered most was getting on base, not the means (hits or walks). At the time, batters were paid for hitting well but not walking well and modern sports alpha was born.

Businesses are always looking for these kinds of edges. Value investing is built on this idea. However, if everyone is looking for these things they can be hard to find.

The best advantages exist where competition can’t. Some investors cite a long-term horizon. Seth Klarman said that his limited partners give him an edge because they cash his checks when they’re distributed and write them when they’re asked.

Two weeks ago we looked at Blumhouse Productions and founder Jason Blum said that his edge is protected by ego. If someone is a fancy-pants Hollywood producer they can’t “get out of their own way” and make low-budget horror movies.

This week we’ll think about edges, when and how they erode, and where we might be able to find them. A business that figures this out isn’t into monkey business at all.