Lessons from the other 'Oracle'
A highly successful NFL coach sets an investing example, too.
In the 20+ years since I began my experience in portfolio management, there has been one individual whose career stands out as a beacon of success. By stepping back and analyzing his decision-making over this period of unparalleled greatness, a number of important investment rules can be discerned. I am speaking, of course, of the Oracle. No, not the one from Omaha (Warren Buffett) but the one from Foxboro, Mass.—Bill Belichick.1
Acquired by the New England Patriots in a trade with the New York Jets at the beginning of the 2000 season, Belichick has led his team to an astounding six Super Bowl wins in nine total appearances—inarguably the greatest dynasty in the history of the NFL (OK, perhaps this Massachusetts native is a little biased). To what can we attribute this amazing record of winning? Three behavioral traits that translate directly to the world of investing stand out:
- Rule No. 1: Don’t hold on to winning investments for too long. The Patriots are renowned for letting veteran players leave late in their careers to sign big contracts with other teams, often to the dismay of heartbroken fans. This has enabled them to avoid ending up with an aging, overpaid roster, prolonging their two-decade streak of success. We all have egos and it is never easy to step away from an investment idea that has worked. It is especially painful when you get out too early and the idea keeps working for a spell (exhibit A: Tom Brady, Super Bowl LV champion). Nonetheless, taking some cash from winners before they start to fade is good advice.
- Rule No. 2: Always be strong up the middle. In investment terms, this means sticking to your knitting and not deviating too far from your core strategy. Much attention of late has been garnered by exciting investment trends such as digital currencies, SPACs and the Reddit-driven GameStops of the world. These fad investments can generate large profits for some but for most represent only a temptation to deviate from a sound long-term investment plan. Getting away from a core strategy, namely strength up the middle on defense (not just the exit of a certain quarterback), was the downfall of the atypically bad 2020 Patriots.
- Rule No. 3 (made famous by that other Oracle, the one known for his investing): Be fearful when others are greedy and greedy when others are fearful. How does this relate to football? When the free agent signing season began two weeks ago, the Patriots went on an uncharacteristic spending spree, signing more free agent players than any other team. Why so aggressive? Well, a season without fans in the stands reduced league revenues, leading to a lower “cap” or limit on salaries that each team can spend. At the same time, the NFL just signed the largest broadcast deal in history, meaning over the next few years that cap, and therefore players’ salaries, will skyrocket. So Belichick, who clearly anticipated things and positioned the team to have space under the cap, is getting greedy when others are cutting payroll to meet this year’s lower cap. Over the last 20 years in investment markets, we have had three extreme examples in which getting greedy when others were fearful of stocks paid off dramatically—the dot-com bubble, the global financial crisis and now, the Covid crisis.
While none of these rules is easy to follow—they tend to go against human nature—each is worth keeping in mind when it comes to potential investing (and football) success.
1 Federated Hermes does not employ nor is affiliated with Mr. Belichick.