Moneyball author Michael Lewis gives amazing insight into baseball's Oakland A's organization and its approach to "finding value in players that other people overlooked." Since value perks our Foolish senses, Tom Gardner sought out the author for an interview, the result of which provided critical investing lessons to Motley Fool Hidden Gems members. It's worth a free trial just to read this interview.
The Oakland A's don't have a bottomless wallet like George Steinbrenner's New York Yankees do, and that forces the team to scout for value in low-profile athletes. Similarly, in the National Football League's ultra-competitive salary-cap environment, the New England Patriots have gained an edge by finding value that other organizations missed.
Fellow Fool David Meier recently looked into some of the biases that result in poor NFL draft selections. Overconfidence, expectation inflation, and false consensus were all noted as attributes that can lead to draft failure -- and investing catastrophe, too. The history of the NFL draft is filled with examples of supposedly can't-miss college players who end up being duds in the pros. But with a little homework, looking for value where others have missed, it may just be possible for a team -- and you -- to land a champion of a hidden gem.
Drafting undervalued champions
When the annual NFL combine comes around, everyone wants to know who is running the 40-yard dash in 4.2 seconds or benching 500 pounds. But football is as much a mental sport as it is a physical one. And oftentimes, fundamentally sound players with good technique go overlooked. Patriots coach Bill Belichick has a knack for drafting these underappreciated winners.
Defensive workhorse Mike Vrabel received little recognition as a third-round draft pick out of Ohio State, but he has been a key player for the Patriots' defensive success. Ten receivers were drafted before Deion Branch's name was called in the 2002 draft, but that didn't stop him from having the last word with an MVP performance in the most recent Super Bowl.
Quarterback Tom Brady may be the shining example of Belichick's strategy for success. Brady was the 199th pick taken in the 2000 draft. He didn't get picked until the sixth round. Every team bypassed him multiple times. And what has he gone on to achieve? How about three Super Bowl rings, two Super Bowl MVP awards, and an NFL team record in consecutive victories?
Winning championships in sports starts with coaches who, instead of buying into the hype of a particular player, do their homework to find championship value where other coaches have neglected to see it. Investing is no different.
Choosing overlooked and undervalued stocks
Too many investors look for overhyped stories like that of alternative-energy provider Ballard Power
Biotech investors will pass by stock in women's clothing, but Chico's FAS
And no one has been a better value hunter than Warren Buffett. From business interests ranging from The Pampered Chef to Fruit of the Loom to insurance, the portfolio that makes up Berkshire Hathaway
Don't buy the hype
These investing examples prove the importance of looking for value over hype. Hype led the Cleveland Browns to make Courtney Brown their No. 1 selection in the 2000 NFL draft. Then, 198 picks later, the New England Patriots selected Tom Brady. Courtney Brown's team has languished in the NFL's basement, while Brady's Patriots have taken home three Lombardi trophies. Don't let the same happen to your portfolio. Follow Bill Belichick's lead. Skip the hype and dig for that hidden value that others have overlooked.
Read on for more Foolish investing lessons:
- Rich Duprey shares how you can build a monster portfolio.
- Seth Jayson shows how the right trend can be your friend.
- Tom Gardner and Rex Moore argue that you can be a penny stock millionaire.
- And Roger Friedman looks for 20-baggers for the next 20 years.
Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.