Maximising outcomes in football and investing – with Simon Hallett

From first match to last this weekend – Middlesbrough away to Manchester United at Old Trafford on Friday evening to non-league Boreham Wood travelling to Bournemouth almost 48 hours later – the fourth round of the 2021/22 FA Cup boasts an intriguing number of ties where clubs take on opposition ranked a long way above them in English football’s tier system.

Of these various ‘David versus Goliath’ pairings, the one we will be watching with particular interest, here on The Value Perspective, is Plymouth Argyle’s trip on Saturday to last season’s Champions League winners Chelsea. That is because our guest on the latest episode of our podcast is Simon Hallett who, after three decades as a professional investor, is now vice-chairman and majority shareholder of the League One club.

Hallett joined New Jersey-based investment advisory business Harding Loevner in 1991, becoming chief investment officer in 2003, and is now vice-chairman. Less conventionally, about six years ago, he began to wonder if there was some way he might serve the club he first started supporting when his family moved to Plymouth in 1966. A minority stake in Argyle has grown a good deal larger and, in 2016, he joined the board.

Luck and skill

So what elements of his investment career does Hallett believe he can bring to the business of running a football club? “The biggest thing you can take from investing into almost any walk of life is an understanding of the biases that affect decision-making,” he replies. “And the biases we know about through investing are particularly prevalent, of course, in activities where luck and skill contribute to outcomes.

“Judging by the number that go bust, football clubs are not always well-managed. They have not had a goal of creating shareholder value so maybe that is one of the reasons they have tended to lack the discipline such an approach can provide. Still, that is not actually my goal with Argyle – I do not think of it as a business but I do want it to be business-like so we can maximise outcomes on the pitch for every pound we spend.

“So what I can bring to the club is what I know about structuring processes to improve decision-making. I have been very clear with the football side of the club that, if I start giving my opinion on, say, 4-3-3, five at the back, two upfront and so on, they can just pat me on the head and say ‘Thank you, Mr Chairman’. But if I say we need to improve our decision-making in certain areas, then I expect them to listen to me.”

A matter of time

Though football and investing each involve elements of luck and skill, this is to different degrees – so how has Hallett adjusted his decision-making processes to take account of that nuance? “They are definitely at different points on the luck/skill spectrum but not terribly far apart,” he replies. “It probably comes down to timeframe – football has an outcome once a week whereas investing is obviously a more continuous process.

“But I would say their similarities are much more important – in particular, they both suffer from what Annie Duke calls ‘resulting’, which is judging the quality of a decision by its outcome. They also both suffer from pattern-seeking – seeing causation in mere randomness – and from extrapolating from very small amounts of data. That all adds up to an inability to make decisions that would benefit outcomes in the long run.”

Another area where football and investment are similar is in the competing time horizons of different stakeholders – with, say, a club chairman having to take a five or 10-year view and a manager thinking a few seasons ahead (always assuming they can hold on to their job that long) while the players might focus on an individual season and many fans on the next game. How does Hallett look to manage this potential conflict?

Continual communication

“Firstly, I am a fan and an owner so I suffer both from caring about, and feeling responsible for, what happens on Saturday,” he begins. “The evidence, of course, suggests too few owners do think about the long term and instead they act much more as fans. Still the simple answer to your question is ‘constant exhortation’, which really comes down to continual communication – be it with clients in investment or supporters in football.

“To help our fans realise this is a long-term project at Argyle, for example, we have published our vision and values on our website and talked at length about our strategic goals and five-year mission, which is to become a sustainable club in the second tier of English football – the Championship. As for dealing with the manager, I actually behave very similarly to how I used to be with portfolio managers.

“When they were having very good short-term performance, I would remind them the short term is driven by luck; and when they were having very bad short-term performance, I would remind them of the same. And it is the same with our manager. I try to look at the data immediately after a game and gauge what was down to luck or playing well and, while I am not a very good judge of that, I can offer constant encouragement.

Generations of culture

“The problem is that, in both football and portfolio management, you are looking to overcome generations of a culture that has always revered individual genius and its influence. When I originally started as an investor in London in the late 1970s, for example, everybody knew who the successful investors were and they tended to be idolised – and, of course, it is the same in football.

“We tend to overestimate the impact of football managers in the same way we tend to overestimate the impact of portfolio managers – and underestimate the importance of structure, process and discipline.” Still, as we have learned throughout our podcast series, here on The Value Perspective, identifying behavioural biases is one thing, addressing them in practice quite another. We look at Hallett’s thoughts on that in Winning goal.