“Hell yeah!” That was Lamar Jackson’s answer when Coach John Harbaugh asked him, “Do you want to go for it?” on fourth down in the waning seconds of their most recent run-in with the Kansas City Chiefs, led by the consensus-best quarterback, Patrick Mahomes. But despite the question, the course of action was never in doubt. The Ravens were going for it on fourth-and-one because they’re one of several teams applying a more analytical approach to the sport of football.
I know, I know…as soon as you start to read this, you’re going to hypothesize that I’m just using this post as an excuse to extend the post-game celebration after the Ravens overcame a host of headwinds to improbably beat the anointed Kansas City Chiefs. You’ll think it’s an opportunistic justification to glory in the underdog vindication, to rub the Lamar Jackson’s haters’ noses in a pile of the Bermuda grass at M&T Bank Stadium that LJ kicked up, as he brought to realization the victory with a huge fourth down surge in the game’s final seconds.
But it’s not just me, a rabid Ravens fan, talking about this; and it’s not just football that we’re discussing. Instead, we’re talking about math and probability, and therefore, the topic is being bandied about in corridors not known for Monday morning quarterbacking. It’s the type of logic that is used in investing even more so than football. So let’s take a look at the single analytic that played such a big role in this game—and then I’ll offer the single most important analytic to address in pursuit of good investing.
Conventional wisdom in the National Football League suggests that once you get to fourth down, if you’re not in field goal range, you should punt the ball to the opposition—because if you go for it on fourth down and you don’t get it, it’s that much easier for the opposition to score, themselves.
But the Ravens are one of several teams no longer succumbing to convention or even just an educated gut feeling. They’re using cold-hard probability to make these decisions. According to Next Gen Stats, the Ravens “had a 75% chance of converting on 4th-and-1 accounting Lamar Jackson at QB.”
If they converted, their probability of winning would be 99%. If they failed, their chances of winning plummeted to 33%. But if they punted, giving the ball back to Patrick Mahomes? The probability of winning would’ve been only 58% (and believe me, it felt a lot lower at that point in the game). Plug all of this into the NGS calculator, and here’s what you get for the “expected win probability”:
· Go for it: 82.4%
· Punt: 57.6%
Go for it, they did. And win, they gloriously did.
There are many—too many—analytics that we can consider regarding investing, often referred to as quantitative, premia, factors, or factor-based investing. Hordes have been identified, and a much smaller number have been considered sufficiently persistent to warrant our attention—like beta, small, value, profitability, and momentum. But there is one that stands above the remainder—and that is the choice to do nothing whatsoever, remaining in the market even when times are tough, instead of trying to get in-and-out of the market at opportune times.
Below you’ll see a chart that shows the hypothetical growth of the market, as tracked by the S&P 500, over the past 30 years (and please don’t miss out on the exciting disclaimer*):
To put these in percentage terms, simply investing in the market for the past 30 years hypothetically netted an investor an annualized compound return of 10.23%. Not too shabby. Missing the single best-performing day, the return drops to 9.84% per year. It’s 8.60% if you missed the five best days, 6.52% if you missed the 15 single best days, and your annualized rate of return drops all the way to 4.88% if you missed out on (only) the 25 best trading days over the past 30 years! (One month U.S. T-Bills gave you 2.64%.)
What’s the lesson here? There are many, many ways to calibrate and improve an investment portfolio. (Here are a few.) But however meaningful, they are marginal improvements relative to the simple (but not easy) discipline of sticking with your strategy through difficult times.
Of course, that presumes that you have an articulable, cohesive strategy, and not the collection of various and sundry investments and strategies that tend to build up over one’s lifetime.
What’s the other lesson? Go for it on fourth-and-one.
If you have Lamar Jackson.
And you’d be punting it to Patrick Mahomes.
It doesn’t always work (and there’s no guarantee the market will either), but it’s putting the odds in your favor.
So, why did Harbaugh ask Jackson if he wanted to go for it, even when he knew that was the decision he and the offensive coordinator had already made, based on the probability? Because, as Daniel Pink taught us in the excellent book, Drive, autonomy is a powerful motivator.
While the Ravens may rely on cold statistics to make certain decisions, Jackson plays with an infective joy, so by involving him in the decision, he enlisted him and imbued him with confidence—an ebullience that Jackson then carried into the huddle and spread to the other 10 players. That decision alone had to increase the probability of a successful outcome a touch more. At the very least, it’s just fun and makes for a great story.
Similarly, financial advisors, we must never be demanding of our clients. We can educate, nudge, and coach, but ultimately, the decision—and ultimately, the outcome—must be theirs, because they are more likely to stick with the decisions they have made than ours.