The ‘terrible decision’ that led to United’s current malaise

Ole Gunnar Solskjaer may still turn out to be a fine manager of Manchester United – but that does not stop his original appointment from being a very poor decision, argues behavioural expert Joe Wiggins



Andrew Evans
Fund Manager, Equity Value

OK, let’s get this one over with because, really, there is no good time to write about the sacking, potential or actual, of Manchester United manager Ole Gunnar Solskjaer. Despite the welcome respite provided by last weekend’s win over Spurs and midweek draw at Atalanta, it all feels a bit mean because, well, Solskjaer seems like a really nice chap and, given the goals he scored for United, he is a bona fide hero at Old Trafford.

And that, of course, drills to the heart of the problem – the worry that Solskjaer’s permanent appointment as Manchester United manager back in March 2019, after a three-month spell in a caretaker capacity, was not wholly based on clear-eyed footballing logic. Or as Joe Wiggins, the author of the excellent Behavioural Investment blog, puts it: “That appointment is a fantastic example of a really poor decision.”

Speaking recently on The Value Perspective blog, Wiggins notes the move has distinct similarities with the way investors can make decisions, before adding a little context for those who do not follow football. “Manchester United are one of the most successful teams in English football history and one of the most valuable sports clubs in the world,” he says.

“When they put Solskjaer in temporary charge in late 2018, he had no great managerial pedigree – and quite underwhelming managerial experience – but he was a hero at the club from his playing days and he had an instant impact. He won 14 of his first 19 games in charge and then, with 10 games still left to go in the season, the club confirmed him as permanent manager and he still holds the job as we speak.

Beguiling narrative

“Objectively, this was a terrible decision – even without taking a view on Solskjaer’s management abilities. Why? Because Manchester United made a judgement based on a small, biased sample and they got wrapped up in a narrative around Solskjaer and around this specific case, when there was no need for them to do so. And the worst part of the decision was that the club still had 10 games to go with his temporary contract.

“In other words, they had a free hit at observing a larger sample than they had of his managerial capabilities, but they decided his initial results were so good they did not need to see any more to make the commitment to him for the long term.” For Wiggins, there are a number of behavioural points to make here – most obviously that, when any sports team’s manager or a coach is sacked, chances are that team are on a poor run of form.

“When someone new comes in – whether as caretaker or in a permanent role – we often see an upturn in the team’s fortunes but that can be just pure mean reversion because they have come off an unusually bad run of form,” he continues. “It could be down to random fluctuations in performance or it could be that the team had a hard run of matches but now they have had an easy run so their results improve.”

This is a point we have made ourselves, here on The Value Perspective, in pieces such as Top guns, where we wondered if you had ever had teachers at school who were keener on doling out criticism than praise. If so, we ventured, it is probable they did not understand the principle of regression to the mean – or that it is only over long periods of time you can begin to distinguish skill from luck.

Toxic combination

“With small, biased samples, it is really easy to make terrible decisions – and these are always compounded by narratives,” Wiggins continues. “And if there is a strong story linked to a positive small sample, that makes for a toxic combination. So there was this narrative around Solskjaer being a hero at Manchester United as a player and then, over a very short time period, he turned around the fortunes of a struggling team.

“But they ignored the fact it was very small sample, there was no real evidence of him being a skilful manager and, in fact, they could have waited and had a bigger sample before making that decision. So, even if he goes on to be a successful manager for Manchester United – which he may do in the future, though he has not yet – it was still a bad decision. Irrespective of the outcome, it was a bad decision.”

For Wiggins, the 2018/19 Old Trafford scenario is very similar to what is often seen in the investment world and, as an example, he homes in on the way some asset managers launch passive exchange-traded funds (ETFs) based on a particular theme. “We see these ETFs launch but they are often based on a relatively short back-test of some in-vogue investment theme that has been working over the last couple of years,” he says.

“Obviously, if the theme has performed well, a fantastic story can be attached to it and investors – like the Manchester United board – are beguiled by a combination of a small, biased, positive sample and a great narrative. When the ETF launches, however, the returns tail off significantly. In both investment and sport, then, you can see how the same factors can all combine to lead us to make some pretty poor decisions.”

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Andrew Evans
Fund Manager, Equity Value


Behavioural finance
The Value Perspective
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