I recently watched Moneyball, the film based on the book of the same name. The producers must have been over the moon to cast Brad Pitt as their protagonist – you need a lot of star power to make a story about baseball statistics exciting!
The plot centers on an interesting idea: even very intelligent, qualified, and influential people can completely misunderstand the rules of the game – both literally and metaphorically – being played. People often make decisions "because that's how it's always been done" without questioning whether underlying assumptions lead to the desired results.
The quick synopsis is that Billy Beane, general manager of the Oakland Athletics, needs to put together a competitive baseball team with a fraction of the budget of larger teams like the Boston Red Sox and New York Yankees. He becomes convinced that getting players on base – not home runs or star players – is the most reliable way to win ballgames.
The people misunderstanding the "game" in this case are not the players on the field; rather, it is the team executives, managers, and scouts who misunderstand the rules for assembling a winning team.
Teams stacked with star players tend to be successful. But star players are expensive, so the baseball scouts in the early 2000s (when Moneyball takes place) spent a lot of time looking for young, unproven players hoping that they could be developed into stars. Sounds reasonable enough, but the problem is that there is absolutely no correlation between a scout's intuition and actual on-field success. Even though the established system did not reliably build winning baseball teams, people kept using it because that's how it had always been done.
While everyone else focused on signing big name stars and nurturing diamonds in the rough, Beane assembled a rag-tag group of players that no one else wanted but were good at getting on base. He saw that everyone else was using the wrong set of rules to build teams and found success by starting from a different set of assumptions. Beane's approach changed how professional baseball teams measure talent and hire players to this day.
There are plenty of examples of this in sports and entertainment, but also in everyday life. Do you have a friend who always seems to end up in one bad relationship after another and has no idea why? Or who bounces from job to job, only to become unsatisfied and quit? These are often examples of making decisions without paying attention to how well those decisions actually lead to satisfying outcomes.
In the context of games, we could perhaps phrase the above examples as the "falling in love game" versus "finding a good match game" or the "finding exciting new jobs game" versus "finding the right job game". It's not that one is right and the other is wrong; instead, it's about recognizing which games are likely to make life better and which will make life worse.
We can also see this phenomenon in how people handle their money. Plenty of people have ambitious financial goals or want a certain kind of life, while simultaneously using their money in ways that prevent reaching those goals. Intelligent, competent people make bad decisions with their money all the time without realizing it.
Instead of doing the same thing over and over and hoping for different results, we can play a different game by tweaking our initial assumptions and paying attention to what follows. I'm going to outline two of the most common ways that people misunderstand the game being played when it comes to money, and how choosing a different set of rules can lead to better results.
Wrong game #1 – Mistaking wealth for expensive things: Most people associate the word "wealth" with the kinds of things that rich people like to buy, like big houses, fancy cars, and beautiful jewelry. I like fast cars and nice houses and luxury watches as much as the next person, but having those things is not the same as being wealthy. Wealth is not about what you spend; it's about your freedom to choose.
When you see a person that has expensive things, all you can conclude is that they used to have money and now they have things. That's it! Wealth has very little to do with income or possessions and everything to do with options.
Imagine a person who makes a lot of money but spends it all as soon as it comes in. That person might have a lot of nice stuff or go on expensive vacations, but what options are available when the money runs out? The only choice is to keep working indefinitely, perpetually earning and spending, just to keep up. That doesn't seem like "wealth" to me.
On the other hand, consider a person who makes a modest amount but saves a large chunk of that income. This person will be less reliant on that next paycheck to meet financial goals and, consequently, will have a lot more options for how to live a full life. Even though this person earns less and has fewer fancy things than the other, only one of them has any real control over how to spend their time.
So how can you change the rules to the game? By staying focused on the life you want, rather than the things you want. When you feel the impulse to buy something you don't need, take a few seconds to ask: will this lead to the life I want or help me be the person I want to be? Or do I just want to scratch an itch so I can feel better for a little while? Remember: wealth means possibility, not possessions.
(By the way, I just reread this section and decided you could swap "happiness" for "wealth" in each instance.)
Wrong game #2 – Trading instead of investing: The pop-culture version of investing typically involves a lot of fast-paced buying & selling, complicated strategies, risky decisions, and a dog-eat-dog mentality all in the name of profit. That's certainly how some people do it, but they are playing by a much different – and more difficult – set of rules than is necessary to be a successful investor.
Let's make one distinction upfront – buying something today in order to sell it for a profit tomorrow (or the next day or week or month) is called trading. Investing, on the other hand, is buying and holding something to generate income or realize gains over years or decades or lifetimes. The difference is in the time-frame (short v long) and level of activity (lots v little).
Trading is really hard to do successfully. In any given year, around 85% of fund managers – people whose job it is to invest huge pools of money – underperform their stated benchmark (a benchmark is whatever they use as a "measuring stick"). That means that only around 15% of fund managers actually do a better job than if they had just invested in their benchmark and done nothing else. (For context, that is roughly the same odds as a pro-sports team making it to the semi-finals – it's really, really difficult.)
So – is trading an exciting game? Yes! Is it a good way to get ahead? Absolutely not! Trading is difficult and time consuming and even the pros rarely do it all that well. Fortunately, we can play a different game with different rules by investing instead of trading.
Let's circle back to that stat about fund managers underperforming their benchmarks. Hidden in plain sight is an amazing fact: you could outperform around 85% of professional fund managers just by buying the benchmark. No complicated strategies, risky decisions, or dog-eat-dog, just buying and holding the simplest, most obvious thing.
Remarkably, this was also true last year and the year before and the year before that. It will probably next year and the year after, as well. Investing might be the only area in modern life where anyone can perform as well or better than the pros using the easiest, most basic strategies. How's that for playing a different game?!?
Instead of stressing on what the markets might do tomorrow or next week or next year, focus on buying and holding investments that make sense over the long term – potentially even the rest of your life. Not only is it easier and, on average, more successful, investing this way allows your money to work for you while you focus your energy elsewhere.
You have a choice in each of the scenarios above: which games can you play to build the life you want? Do you want to play the spending money game or the building wealth game? Does the investing game suit your goals better than the trading game? Recognizing which set of rules best matches the outcomes you want will help you avoid unnecessary struggle on your journey.
Thanks for reading. Enjoy the rest of your week!
Timothy Iseler, CFP®
Founder & Lead Advisor
Iseler Financial, LLC | Durham NC | (919) 666-7604
Iseler Financial helps creative professionals remove stress while taking control of their financial futures. As both advisor and accountability partner, we help identify current strengths and weaknesses, clarify and refine your long-term goals, and prioritize understandable, manageable, and repeatable actions to bring long-term financial well-being. Reach out today to take the first step.