Will England Win the Euros? Don’t Bet on It.
“It is difficult to make predictions, especially about the future.”
—Yogi Berra
The UEFA EURO 2024 European football championship kicks off this weekend. Like millions of football fans, my family will be looking forward to an entertaining tournament, some exciting games and, hopefully, a successful outcome for our team.
Of course, we all hope for the win, but what about our reasonable expectations? I asked my son-in-law, a passionate supporter of the English national team, whether he took any comfort from England’s current position as pretournament favourite—based on the odds at least.
He didn’t. Perhaps, like me, he has suffered through too many years when our dreams of success have foundered on the reef of yet another penalty shoot-out. But aside from the history of England’s performances in the knockout stages of major championships, was he right to be pessimistic about the pretournament odds having any predictive power as to the eventual winner?
To answer the question, we ran a simple experiment where we looked at the last five European championships and compared the teams’ finishing positions with their pretournament betting odds. Unsurprisingly, we found that it is indeed difficult to predict winners ahead of time. Of the five tournaments, there was only one year when the bookies’ favourite ultimately triumphed—Spain in 2012.
This will be no surprise to us in the investment world, where the parallels are blindingly obvious. Decades of empirical observations and academic studies have shown that trying to pick winners ahead of time—whether individual stocks or star fund managers—has a very low chance of success.
However, there was another lesson to be drawn. We expanded the study to look at how well the pretournament winner odds predicted the makeup of the last eight—the quarterfinalists—and here, the predictions were much more accurate. In fact, of the 40 quarterfinal places available between 2004–2020, the pretournament predictions got 27, or 68% of them, correct. It seems that the market does a better job of weighing the characteristics of teams that are more likely to win than it does of picking eventual winners, given the amount of noise and randomness that can occur in individual games.
Here again, there are lessons that we can take into the investment world. At Dimensional, we believe that there is information in market prices that allows us to identify the subgroups of stocks in the equity market that have an elevated probability of winning—or, more specifically, have higher expected returns. We are not trying to predict whether an individual stock will be a winner. Rather, we are looking at how the characteristics of stocks sorted by their size, their relative price, or their profitability can tell us something about their collective performance over the longer term. And this is what we see in the data: The intuition and the theory are supported by the evidence.
Whether or not your team wins the final on Sunday 14 July, we hope that you enjoy the beautiful game for what it is—a game. But if you were interested in a bet, then perhaps the best tip I can offer, based on this analysis, is: England to make the last eight.
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