Pros Versus Casuals

One of my favorite events at the NFL Combine is when NFL Network’s Rich Eisen runs the 40 yard dash.  He uses the Run Rich Run event to raise money for St. Jude’s.  It also helps give perspective to just how talented the athletes at the combine are.  Viewed on the field of play, athletes usually don’t look all that different from one another so when someone sees that Denzel Ward is 5’11” and 180 pounds, they may be tempted to think, “I could compete with that guy!”  No, you could not.  Eisen runs a 6-second 40.  Ward is at 4.3 seconds.  Rich provides the average fan a service that should be available in every sport.  I want to see an average guy swim against Michael Phelps or a group of randoms take on an Olympic curling team.

Seeing the difference between a professional and an amateur on screen is helpful.  Seeing it first-hand is shocking.  Sit in the lower bowl of an NBA game and you will quickly recognize the difference between a normal person and an NBA player.  While few of us will ever go head-to-head with a professional football, baseball, or basketball player, there are some venues where amateurs can test their skill against the best.  I could mention golf here since you or I could go out and play the same course as a professional and tally our inadequacies across an afternoon (a good walk spoiled).  I think there are a couple of better examples, though:  e-sports (ok, video games) and stock trading.

Video games should be a level playing field.  It doesn’t matter how tall, fast, or old/young you are, everyone is equal.  The determining factor is skill.  Getting destroyed by a 14 year old on the other side of the planet is a humbling experience.  The difference between pro, hardcore, and casual players is night and day.

While there is no shame in accepting that professionals will usually crush casual competitors, I continue to meet people who think they will outperform the market with their stock-picking.  Have they put in 10,000 hours (about 5 years of 40-hour weeks) of practice to achieve mastery in stock trading?  No, but they watch CNBC sometimes and they have a buddy whose broker bought some stocks that have done really well.  Check out Aswath Damodaran on Amazon stock.  This dude is better at analyzing securities than you and me and 99% of everyone else out there.  He totally whiffed on Amazon.  Repeatedly.  And yet people continue to trade based off of what they read in their free time and expect good things to happen.  Not just good things, but market beating performance!

Why is it that when provided with evidence, we can accept that we won’t throw 95 mph fastballs or sing 5 octaves, but it’s so difficult to give up on beating the market?  I think part of it is a lottery mentality where people hear about a stock like Amazon and how if they had just put $10,000 in at the IPO, they’d have a gazillion dollars.  It’s highly unlikely they would have been able to stomach holding on to Amazon (or Apple or whatever) long enough to get rich, but it’s a nice fantasy.  The truth is that stocks that have had huge gains have also had huge downturns and there will be stories about how someone else got out at the top which drives our animal brains crazy.

Another aspect is that the level of talent of the other market participants is masked.  When you hit the buy button on your Schwab account, you don’t see why the other person is selling that stock to you at that price.  Is it a hedge fund manager shorting the stock because he golfs with the CEO and noticed his game was off?  Is it a supercomputer algorithm selling to you at $10.0001 when it bought at $9.9999?  Is it a pension selling to generate cash for liabilities?  Is it your cousin Lucas selling because he’s an idiot?

Investing shouldn’t be viewed as a competition.  Competitors all have the same goal.  The market is stocked with participants, each with their own motivations.  This is one of the reasons it can stay irrational longer than you can stay solvent.  It makes far more sense to figure out what your financial goals are and then use the market to achieve them.  It’s like swimming in the ocean.  You can swim as hard as you can against the waves and end up somewhere you don’t want to be with the twin anchors of fees and taxes weighing you down.  Or you can go with the flow and surf back to shore.  The key is to have a plan and let the markets do the heavy lifting for you.

Photo by Marianne O’Leary