Economist John Maynard Keynes said a successful investor must be “eccentric, unconventional, and rash in the eyes of average opinion.” The difficulty is, “if he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy.”
Keynes wrote these words in 1936, but he could have been talking about Detroit Lions coach Dan Campbell and his two decisions to “go for it” on fourth down, which were reckless, ultimately failed and cost the Lions their first trip to the Super Bowl.
Or did they?
The Lions traveled to San Francisco to play the top-seeded 49ers (7.5-point favorites) for the NFC Championship. The Lions blew a 17-point halftime lead, eschewed two makeable field goals (six potential points) in the second half on failed fourth-down conversion attempts and lost by 3 points (34-31). Conventional “wisdom” is you should always opt for “putting points on the board” by kicking a field goal on fourth down. Those six points would have turned the loss into a win, so the judgment and vitriol from the “herd” was swift (no pun).
Investors and football fans tend to focus on outcome, which is simply the final score. How did your portfolio perform last year? Who won the game? Outcome is the result, but it doesn’t tell you anything about how that result was achieved. Outcome is about the “right now.”
Process refers to the specific methodology used by a portfolio manager or coach. Unlike outcome, process is both repeatable and controllable. Process is about the “long term.”
We’re hard-wired to focus on outcome. Outcome is easier to assess than process. You know exactly how your portfolio or team performed. At the end of the day, you can “spend” outcome, but not process.
Unfortunately, over the short term, it is impossible to determine if a given outcome was caused by a good or bad process. It is a mistake to assume a good outcome is the result of a good process and a bad outcome implies a bad process.
Managing a portfolio or team are both probabilistic endeavors, which means good decisions will sometimes lead to bad outcomes and bad decisions can lead to good outcomes. The most successful practitioners focus on process over outcome because they are confident that, over the long haul, process will dominate outcome.
The expected value of any investment can be modeled using the possible payoffs (i.e. stock price) for a given outcome and the probability of those outcomes’ materializing. We try to identify situations where there is a significant gap between our calculation of expected value and the current price of the security (i.e. positive expected value). If we correctly apply probabilities and payoffs to create a portfolio of investments with positive expected values, we should be successful over the long haul.
Campbell “went for it” on fourth-and-2 at the 49ers’ 28-yard line in the third quarter, up 24-10, and on fourth-and-3 at the 49ers’ 30-yard line in the fourth quarter, down 27-24. Both failed.
Campbell isn’t a wild-eyed gambler but is a process-oriented sports analytics geek who “goes for it” when the probabilities give his team the best chance to win. Since Campbell became coach in 2021, the Lions had gone for it an NFL-leading 123 times. Over the last two seasons, the Lions went for it an NFL-high 23 times on fourth down with two to three yards to go with a 70% success rate, far above the 52% average for the rest of the league.
Fourth-down decision statistical models can calculate a projected “win probability” for a team if it decides to “go for it” on fourth down or kick a field goal/punt. The Athletic said the rbsdm.com model indicated the Lions would gain 2.2% and 2.0% of win probability, respectively, by “going for it” in those two critical situations.
Yes, there are always nuances. Lions kicker Michael Badgley is a journeyman who was elevated from the practice squad in December. He had attempted only six field goals this season, all indoors and only two from 40 yards or longer. Badgley was only 37-of-48 (77.1%) from 40-49 yards in his career, so neither the 46- nor 48-yard attempt was a “sure thing.”
Ironically, the fourth-down decision Campbell can be criticized for (and nobody is talking about) was kicking a field goal on fourth-and-3 from the 49ers’ 3-yard line with seven seconds left in the first half, up 21-7. According to rbsdm.com, that decision cost the Lions 4.4% in win probability.
Nobel Prize winner professor Richard Thaler once told me, “In both sports and investing, the best policy is to adopt a good long-term strategy and just accept that sometimes the markets go down and attempts to convert on fourth-and-inches fail.”
After the game, Campbell said: “It’s easy in hindsight. I get it, but I don’t regret those decisions. It’s hard because we didn’t come through, and it wasn’t able to work out. And I understand the scrutiny I’ll get—that’s part of the gig—but it just didn’t work out.”•
Kim is Kirr Marbach & Co.’s chief operating officer and chief compliance officer. He can be reached at 812-376-9444 or firstname.lastname@example.org.