What does a walk in baseball have to do with a mutual fund manager's inability to beat the S&P 500 index? More than you might think.
When Oakland As General Manager Billy Beane popularized the baseball science of sabermetrics—which actually dates to the mid-20th century—the "Moneyball" era of professional sports kicked into high gear. A stat like a player's ability to get on base—by walk or hit—otherwise known as on base percentage (OBP)—achieved the status of Major League Baseball golden formula. Players with an outlier's ability to "work a walk" were suddenly hot commodities on the free agent market, with OBP being bid up to bubble proportions. But once everybody in baseball got wise to that sabermetric trick, exploiting the same inefficiency in the market, could the advantage last?
That's where the mutual fund manager comes in. Once upon a time, the active manager in the domestic equity mutual fund world was on a pedestal, able to exploit inefficiencies in the market that made names like Peter Lynch of Fidelity Investments and Bill Miller of Legg Mason mutual fund world all-stars.
With the rapid spread of stock market and investing information, and advanced trading tools available in your home office at discount brokerage prices, it's been a long time since active domestic equity managers have been able to stand out and merit the high fees they charge relative to index funds—the inefficiencies once exploited are now known by everyone and their brother—everyone is, in essence, Billy Beane in this context.
And that's how a batter with an uncanny ability to get a walk in baseball can become an average performing, overpaid fund manager.
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As leagues and teams embrace the data gospel to an even greater extent—and with a greater cost, though still relatively inexpensive in the billion-dollar world of sports—one economist said it's an open question if data will continue to be as significant a determinant of success.
"Delving hard into data can be successful in assessing talent in baseball, but a lot of the low-hanging fruit already has been picked," said Andrew Zimbalist, co-author of "The Sabermetric Revolution" and an economics professor at Smith College, speaking on CNBC's "Squawk Box."
"On base percentage, and walks being as important as hits, that was the easy work, and teams only had to pay $30,000 to hire somebody to tell them that," he said. "These days they are doing much more sophisticated, complicated stuff that will have a marginal impact that will be a lot smaller, and the people they are hiring cost a lot more."