Leveraging data to find an edge
Extracted from Bloomberg.
Whether on the golf course or in the markets, the line between stardom and mediocrity is razor-thin—and data analysis is a key differentiator.
When competing at the top level in anything - especially when money is involved - the difference between being king of the road and middle of the pack is generally miniscule. Consider this stat from the PGA TOUR: At press time, the difference between the players ranked No. 1 and No. 30 in scoring average was a mere 0.946 (69.731 to 70.677), or less than a single stroke per round. Yet that disparity equated to a nearly $4 million gap in 2016 earnings between the two players.
Finding that edge is what has always kept professional golfers awake at night. In the days before Big Data came to the game, this largely meant replaying rounds in one’s mind, trying to intuit patterns: Am I come up short on approach? Pushing drives? Pulling putts? Today, there is a more efficient way to make up for that lost stroke.
Deep data dives
Using robust data technology, such as the PGA TOUR’s ShortLink System that tracks every shot by every player in every round, the opportunity now exists to be far more objective about one’s performance. In golf, as in investing, however, the trick is focusing on the menaingful data, rather than on mere noise.
“You want to look underneath the scores,” says Mark Broadie, a Columbia Business School professor and a pioneer in the field of golf analytics. “You need to control for other factors to understand the information content of the scores.”
Data analytics has already demonstrated its clear utility as a diagnostic tool. Players whose stats are weak in a certain area - approaches from 225 - 250 yeards, for example, or right rough avoidance - now use this information to guide their training and alter their practice routines.
Big Data isn’t only impacting technique and psychology, but also course strategy. Whether on their own or with one of the number-crunching gurus beginning to appear within the players’ inner circles, top pros are now applying data analytics to decide, for example, whether to use a driver or a safer 3-wood off the tee on certain holes, which pin positions on a particular green to attack, or which par-5 holes are best attempted to reach in two shots versus three - all of this to find the sliver of edge on which outperformance rests.
Avoiding the rough in investing
This strategic approach is familiar to Standard Life Investments, the first Worldwide Partner of The Ryder Cup, the biennial match-play event between the US and Europe that will take place in September at Hazeltine National Golf Club, in Chaska, Minnesota.
Standard Life Investments is well known in Europe and the UK and in the last five years it has doubled its global client base, expanding its footprint to the US and beyond. Much of that success is due to an approach that emphasizes—like The Ryder Cup—melding highly talented individuals into a cohesive unit that prioritizes the prosperity of the team.
Where amateur golfers quake when contemplating a fearsome shot over water to a tiny target, pros see the chance to separate themselves from the field. Invest- ment professionals likewise recognize the opportunities presented by volatile markets. Identifying misalignments when fear reigns offers the chance to make money when others are keen to pull back.
“You need to identify the right data to answer the questions you’re interested in.”
“You need to identify the right data to answer the questions you’re interested in,” says Jeremy Lawson, Chief Economist, Standard Life Investments. “There’s more data than ever to access, but not all data is true information content. And that data means nothing unless you can analyze it using sophisticated empirical and analytical approaches to tease out the true structural relationships between variables.”
In trying to ascertain the deeper connections between various economic indicators and asset returns, and how those correlations might be changing over time, Standard Life Investments continues to develop its own analytical tools. The company’s powerful, proprietary financial stress index, for example, takes in vast amounts of market information—volatility, credit spreads, liquidity, macro data, among numerous other variables—and summarizes how the market is behaving. Even more significantly, it contains forward-looking information about how economies are evolving and what the environment may look like over time. On the fairways and in the financial trenches alike, using data to make sense of recent history can lead to hazards avoided and a more prosperous future.