What the basketball GOAT can teach investors

I was listening to an audiobook by comedian Jimmy Carr over the weekend.

In it, amongst the jokes and advice, was a reminder of a quote I’ve long appreciated, from basketball legend, Michael Jordan:

“I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed”

Now, writers like nothing better than a nice little sports metaphor. They’re understandable, and relatable.

No, sorry, there’s no ‘but’ here.

I like them, too.

I mean, they’re not perfectly analogous, for more than a few reasons, but they’re also not not analogous.

And I particularly like them as an investing analogy when it comes to the topic of Jordan’s quote: failure and success.

I’ve used a football match as an analogy before, to illustrate something similar.

See, even the best teams miss tackles.

Even the best teams concede tries and goals.

Even the best teams lose games.

Even the best teams have losing streaks.

Even the best teams have poor seasons.

It goes further, though.

The best teams often aren’t the best teams for long stretches.

Sometimes years on end.

See, they’re not the best teams because they never lose. They’re the best teams because they lose less often – and therefore win more often – than the other teams, on average, over a long period of time.

Oh sure, there’s a ‘best team’ in each competition, right now. They’re the ones on top of the respective ladders/tables.

There is a ‘best team’ of the last year, too.

And the last five years.

Though at this point, it gets kinda arguable.

Go to 10 years and you have the making of a weekend afternoon-long debate.

But statistically, I reckon you can still pick, if not the best single team, the best two or three.

And when you do, you’ll find something really interesting.

You stop talking about this weekend’s game. Or last year’s premiers.

You start talking about teams (clubs, really, because most players will have moved on inside a decade) that have something different.

Not the best player (though that helps) or the right tactics (ditto).

You end up talking about the structural stuff that matters more. That allows success to be enduring. No, not always ending in a premiership every year, but an approach that makes success more likely than not, and that delivers an above average performance, over the long term.

If your preferred sport doesn’t have a salary cap, you’re thinking about their financial firepower. If it does, things like the ‘back office’, club culture and other non-monetary differentiators come to mind.

But those all fall under ‘strategy’ not ‘tactics’. The aim is of course to win as many battles as possible, but the broader aim is to win the war.

(The only thing that rivals sports metaphors? Military ones. Let the court-martial begin. Guilty as charged!)

The strategy that makes long term success more likely will almost certainly also result in more individual games being won. But not all of them.

And it won’t deliver success every year, either.

But, considered carefully, codified cleverly, and executed faithfully, the right strategy will earn more than its fair share of success.

Which is where I want to return to investing.

Warren Buffett didn’t have many bad years, in six decades in charge of Berkshire Hathaway (I own shares). But he had some.

Not because his strategy was wrong, but because sometimes the circumstances were such that it didn’t prevail in the short term.

During the dot.com boom, index investors left Buffett’s returns for dead. Tech investors did even better. But he didn’t change his approach. He didn’t abandon his strategy.

He just accepted that it wasn’t delivering in the short term, during that time.

Over time? You won’t be surprised to know that Buffett had the last laugh.

The key was not trying to adjust his approach just because he’d had a few losses in a row.

It was the opposite: sticking to what he was convinced would work in the long term.

Not being scared, impatient, impulsive or listening to those, like the headline writer, who (in)famously asked ‘What’s Wrong, Warren?’.

It can’t have been easy. I mean the man is Warren Buffett for goodness sake. He’s the bloke with the reputation as the ‘Oracle of Omaha’.

So publicly trailing the market must have been really tough.

No-one likes to be perceived as – or to feel like – a loser.

Just ask those footy teams who punt their coaches or managers a few games into a new season.

It’s madness, of course: this was apparently the right bloke only 6 weeks ago, and now he’s totally unsuited to the role? Really?

Generously, maybe the club bosses just realised they made an error appointing (or reappointing) the bloke as coach.

Realistically? They just hated losing (who doesn’t?) and couldn’t trust the(ir own!) process. They just felt like they had to do something. Anything!

They would, in all likelihood, make terrible investors.

If you buy shares, and sell them six weeks later because they’re not ‘winning’ yet, you’re not an investor. You’re not even a gardener. You’re barely a house painter!

I’m not sure what outcomes in life you can reliably expect will unfold in six weeks, especially when you’re competing against others – and the fickle finger of fate – but I suspect there aren’t many, and they’re unlikely to be consequential.

The real successes, though? The long term ones?

Almost without exception they come from understanding what combination of factors tend to result in long term success, then doing those things, repeatedly, consciously, faithfully, over time.

Even though the results may not be known for years.

And… accepting that they won’t always be enough.

Crucially, though, remembering that at those particular times, a  kneejerk change of course will probably feel better (‘Just make the pain stop, please!’), but probably at the expense of long term success.

Or, at the very least, leaving that success up to chance, on the basis that if you change enough, often enough, maybe, eventually, you’ll get lucky.

That’s not how the good teams building winning cultures, or long term success.

Jordan didn’t change his technique every time he missed a shot… even when he cost his team a game.

Oh, sure he constantly tried to learn and improve, but that, itself, is a strategy.

But also, while bitterly disappointed, he trusted the process. Remember the last sentence of that quote:

“… I’ve failed over and over and over again in my life. And that is why I succeed”

He didn’t succeed because of a lack of failure. He succeeded because of that failure.

I can’t tell you how many would-be or one-time investors I’ve heard of, or from, who bought one, or two, or three stocks and, dejected because they weren’t immediate successes, threw the whole thing away.

(I do know they’re the vocal ones on social media or in chat rooms, telling anyone who’ll listen that ‘this whole thing is a scam’!)

They don’t realise how close they got. And what they’re throwing away because they missed a single game-winning shot.

Jordan never stopped chasing perfection. But he didn’t let falling short turn him into a quitter.

The missed tackles are annoying. The game losses are dispiriting. The years of relative underperformance are mentally and emotionally taxing.

But, if you have the right strategy, and you can commit to seeing it through despite – especially through – the tough times, you’ll usually do very, very well, over the long term.

It is, not surprisingly, the same in investing.

You can invest like a panicked football club boss.

Or you can invest like Michael Jordan.

And the choice you make will make all the difference.

Fool on!

The post What the basketball GOAT can teach investors appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips has positions in Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.