This article is about a Premier League football game for the ages, the strange case of an unconventional failure it contained, and the lessons it offers for real estate investment managers.
But first, a quote about lemmings.
Warren Buffet has said that “as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.”
Similarly, John Maynard Keynes said, “worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”
Both sports coaches and portfolio managers know this.
Sports coaches, for example, understand that their career success is not determined solely by their winning record but also by the perception of their coaching abilities. There is substantial overlap between these two factors, but they are not the same thing.
Aware that their employers and fans have long, tightly held beliefs about how the game should be played, most coaches act according to the incentives this creates. They know that risking losing while deploying unconventional strategies can be career-limiting.
Therefore, conventional thinking about appropriate strategies can take a long time to change.
In American football, it took decades for the data showing the value of going for it on fourth down to influence gameplay.
In basketball, it was more than a quarter of a century after introducing the three-point line before teams started to think appropriately about what it meant for shot selection.
In ice hockey, coaches typically fail to act quickly enough in pulling their goalie to gain a numerical advantage in outfield players when they are chasing a game.
The natural desire to win and the highly competitive nature of sports do not ensure optimal strategies. There is a general aversion to riskier, unconventional strategies. As Buffet says, “most managers have very little incentive to make the intelligent-but-with-some-chance-of-looking-like-an-idiot decision.”
Portfolio managers generally act similarly. In equities, many managers eschew cheaper but lower-quality companies. They can present themselves as more prudent and cautious by investing in more expensive companies with exciting prospects. However, the data shows that cheap stocks tend to outperform expensive stocks.
