How Much Does Experience Matter?

There is a great scene in Moneyball where legendary scout Grady Fuson and Oakland A’s general manager Billy Beane are talking about the evolution of the game. Fuson is from the old school and thinks there are some things numbers just can’t tell you that intuition can. There are a lot of parallels between sports and investing and I think this conversation is especially pertinent.

“You don’t put a team together with a computer Billy”

“No?

“No.”

“Baseball isn’t just numbers. It’s not science. If it was, anybody could do what we’re doing, but they can’t, because they don’t know what we know. They don’t have our experience and they don’t have our intuition.

“Okay”

“You got a kid in there that’s got a degree in economics from Yale. You got a scout here with 29 years of baseball experience. You’re listening to the wrong one. Now there are intangibles that only baseball people understand. You’re discounting what scouts have done for 150 years?….

“Okay, okay, my turn. You don’t have a crystal ball. You can’t look at a kid and predict his future any more than I can. I’ve sat at those kitchen tables with you and listen to you tell parents ‘when I know, I know and when it comes to your son, I know.’ And you don’t. You don’t.”

There was an article a few weeks back saying that many people working on Wall Street have yet to live through a rate hike. To this I say so what? Will the current rate hike look like the last one, or the one before that? Will different asset classes behave similarly, the same, or the exact opposite?

On the one hand, people that have been investing through the events of 1987, 2000 and 2008 have experienced a lot of different markets. On the other hand, isn’t it possible that this experience can lead to overconfidence? Failing to admit you’re wrong? Anchoring to previous outcomes?

I’m not sure what to think when I see someone say something like “I’ve been doing this for twenty years and ______.” What’s the right way to think about experienced investors, and what qualifies as experience? Is it ten years, twenty, fifty?

How much does experience matter with investing? When is it okay, if ever, for intuition to override data?

I don’t know if there is a right answer here. I suspect that like most things investing, success or failure will be on a case by case basis. My hunch is that some people will learn from history, others won’t, and some others will learn the wrong lessons.

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