Will England Win the Euros? Part 2
Now the Euros have progressed and, at the time of writing (the morning before the semi-final game against the Netherlands), the outcome for England is still unknown. It might not be by the time you read this, but that isn’t the point of this article. There is another investing lesson we can learn.
The 2024 tournament has certainly had its share of exciting games and surprising results. For the England fan, their team’s journey to the semi-finals was at times painful to watch and not without its nail-biting moments. Indeed, based on some of the performances in the group stages, a semi-final appearance seemed unlikely. However, England’s progress through the tournament is an example of a crucial concept: the power of updating our predictions based on new information. In the beginning, odds might have been set based on historical performances, team composition and expert opinions. As the tournament progressed, each match provided new data points—goals scored, defensive stability, individual performances and other information that we can use to refine those predictions.
This is a great example of Bayesian statistics at work in the real world, providing a framework for updating the probability of an outcome by incorporating new information. Imagine you have an initial belief—your “prior”. Then you gather new data and, finally, update your belief, taking into account both the prior and the new evidence. In the context of EURO 2024, that’s exactly what happens because each game is a new piece of evidence that helps to refine our expectations about the remaining matches.
This aligns closely with Dimensional’s approach to fund management. Unlike traditional indexing which is static, akin to using only the odds available at the beginning of a tournament to make your bet, Dimensional’s approach is inherently dynamic. We adjust our trading positions daily to incorporate new information in market prices. In both football and investing, early opinions—whether from fans, pundits, or investors—can be drastically altered by new events. This demonstrates the value of maintaining a dynamic and responsive approach to managing investments based on the most current market data.
EURO 2024 offers more than just entertainment; it provides valuable lessons in probability and prediction. By this evening, we will be able to incorporate new information to better assess whether England will win the Euros. One thing is for certain: The odds have changed since the tournament began.
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