Original Publication Date: April 14, 2016

Key takeaways:

• The typical stock picking contest, while often promoted as a test of skill, takes place over too short a time period for the effects of skill to overcome those of luck. Real-world investing is a process that unfolds over decades, not months or single years.
• Numerous business schools promote versions of the stock picking contest which are either pitch competitions which inevitably consider presentation skill over idea merit, or suffer the same timeframe shortcomings as a typical stock picking contest.
• My proposed contest model would teach longer term thinking around investment selection and potentially increase attendance at class reunions.

We humans sure love contests! For millennia we have entertained ourselves with contests based on luck, skill, or some combination of both. Luck-based contests such as lotteries and sweepstakes provide entertainment but say little about the winners’ merit. In pure skill or talent-based contests, such as racing in all its forms (100 meter dash, 200 meter butterfly, the Indianapolis 500), winners are determined by a single objective criterion - fastest to finish. Most contests that gain our attention and interest, however, include some combination of luck and skill, such as singing and dancing competitions where talent is important but winners are determined by judges’ scoring or a form of voting rather than an objective criterion like fastest time. (There is an interesting derivative argument a group of my friends has had over many years around what defines a sport versus an athletic competition, the conclusion of which is available here.)

Original publication date: March 31, 2016

Key takeaways:

• Sports culture has conditioned fans to think about success in one-year increments. However, investors, unlike sports fans, don’t start from zero at the beginning of each year.
• In investing, the best performers are those who perform above average, even if not spectacularly so, year-in and year-out with few if any poor years.

Major League Baseball’s 2016 season starts on April 3, and with it the hopes of every team’s fans for a World Series championship. Spring is when fans of last year’s losing teams such as the Philadelphia Phillies (99 losses last year), the Cincinnati Reds (98 losses) and the Oakland Athletics (94 losses) can erase the memories of last year and start at 0-0 like everyone else. As a sports fan and an investment manager, I’ve often thought about what constitutes excellence in both disciplines. My inner sports fan has been conditioned since childhood to think about baseball and other team sports as one-year contests of superiority. The teams play their regular season schedules, with the best among them moving into a playoff, and the winners of that playoff meeting in a championship game or series. The championship winner claims the bragging rights for that season, everyone rests for several months, and the next year the cycle repeats starting with a clean slate.