I mention this b/c with investing and many other things, where everyone else sees frustration I often see hope, and when everyone else sees hope I often see frustration. It is a tendency that bugs the shit out of wife.
I've been thinking about all of this following the NBA draft deadline when my Philadelphia 76ers* made a blockbuster "win now" trade that sent four draft picks and a highly promising (and much beloved in our house) rookie from Wichita State named Landry Shamet to the Clippers for a "near all-star" on an expiring contract Tobias Harris.
They also swapped bench players, unloaded their 2017 #1 pick (don't get me started), and earlier in the year traded two starters for a talented but crotchety one in Jimmy Butler.
The widespread response in the Philly sports world was pretty optimistic, as if we should already crown them Eastern Conference finalists.
I always get a chuckle whenever I read about "blockbuster trades" and dream teams and other "sure bets" like this b/c they are rife examples of the yin / yan of our existence: hope and frustration. The one thing I'm certain of with the Sixers is that that "the process" is over.
I'm not enough of an "inside basketball" type to assess the players' talents but I do see in this trade, analogs - as there often are - between sports and investing.
The first analog is in the form of "utility." Now, when I took economics in college with this guy** I was put off by my erroneous conflation of "utility" with profit. It wasn't until more recently that I learned that Bernoulli purposefully used the vague term "utility" to simply mean "betterness" as it relates to different people under different scenarios.
Without even knowing how well each participant in the trade increased their teams "betterness", we can at least assess their "betterness" goals.
In pulling forward the future - in giving up a bunch of draft picks and younger/lesser talent for two older, more experienced and statistically more talented players - the Sixers made clear their "betterness" is to win now. Meanwhile, the Clippers moves revealed a "betterness effort" to have options for tomorrow.
The second analog is in understanding the discount rates used by each team. The Sixers use a low discount rate and value the present more highly. The Clippers use a high discount rate and see the assets they've accumulated today as worth much more tomorrow.
I have observed over my years some investors making all sort of near constant adjustments to their portfolios, trading around and around again, to dial in some perceived idea of the "perfect portfolio today". On the other extreme, I've observed other investors - Polen and Lyrical come to mind - that simply buy a handful of stocks that fit very specific parameters, and they wait.
I follow this latter profile b/c investing isn't about today, it is about the future. The more patient one can be, the more capable they are of making decisions that can pay off over time, the more opportunities they'll have at generating returns that are different from the indexes. And if they are good at recognizing the few times these opportunities come their way, then those differences might be substantially better than the indices.
As a concentrated small cap focused investor, most of the companies I own would appear to others more "prospects" relative to other larger companies. However, many of the companies I own actually have long operating histories (INS, PSSR, DAIO) or management teams with significant operating experience within their industries (QRHC, CTEK). While they are small and growing, they are far from unknown quantities.
I am, as the name of this blog suggests, a patient investor. Today's money is cheap relative to tomorrow's opportunity. And I tend to find distasteful the kind of impatience revealed by the Sixers management in this trade. I like durable growth with downside protection. I like wide opportunity pathways and narrow gutters. By giving away youth and draft picks, the Sixers traded away optionality. I'd argue they've not so much widened the opportunity pathway as much as widened their gutter.
I can't project how well the Sixers new players fit. As a long time fan, I'll root for them to win. But woe be the market participant who invests for the same reasons they watch sports!
I'm not above the yin / yan of "hope and frustration" but I rely on facts and knowledge to support me so I'm not whipsawed by the emotional roller coaster of the market. I find it better to understand the actual opportunity pathways towards success, and equally as important, the width of the gutter, than to rely on hope, which is simply not an investable thesis.
And the best part is, my season is as long as I want it to be. At least through Long Cast Advisers' first three years, the record indicates some success with these efforts.
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* I don't actually own them, I'm just a lifelong fan
ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.