Michael Lombardi began his career in the NFL way back in 1984 as a talent scout for the San Francisco 49ers under head coach Bill Walsh. After that, he was a scout for the Cleveland Browns in the late 80s before transitioning into a career as an executive with the Browns, Eagles, Raiders, and most recently the New England Patriots.
Lombardi’s career began under a Hall of Fame head coach (Bill Walsh) who believed that his leadership skills were ‘universally applicable’ and could be applied to any position in any field, not just as a coach or exec in the NFL.
Michael Lombardi describes his career as an NFL talent scout and executive as being primarily in ‘the data collection and appraisal business’. He recently penned an opinion piece for MarketWatch where he makes the case this his five tenets of assessing players in the NFL can be equally applied to picking stocks. Let’s check ’em out:
1. Never begin with the end in mind
Whether evaluating a company or an NFL player, you must remain completely objective and without bias. Don’t buy into hunches or gut feelings; ignore them. If any bias enters the data collection process, then all data will lean toward that predetermined result. Equally, collecting only specific data causes mistakes, whether in choosing investments and or drafting players. (via)
This one seems pretty self-explanatory but it’s also a tricky one for investors to get past. If you’re the gambling type then your instinct is to follow hunches and gut feelings. His advice is to gather all of the possible data and make an objective decision based on what’s in front of you and not how you feel about it.
2. Look to the past, but not for the reasons you think
The one-year success story, whether it be about an investment or a player, is deceiving. Many people may think that one good year means there is much more to come.
In scouting, we always took the approach of looking back, not ahead: Why did a player not play well in prior years? Why did it take so long for his talent to shine? Researching the past allows us to wager on the future with a clearer understanding. (via)
He uses the example of Tom Brady here, stating that Tom never really got his foothold at the University of Michigan due to lack of playing time, something that Bill Belichick recognized. Look to the past to determine what could lay ahead, I guess, if something can be fixed or changed.
3. Don’t fall into the ‘two-solution trap’
Whether in football or investing, decisions are made every second, every hour, every day. Employees present a problem, offer two viable solutions, and expect the leader to make the right choice. Even Monty Hall from “Let’s Make a Deal” provided contestants with more options than that. (via)
He argues that the NFL’s best leaders don’t deal with options A or B, they spend time looking for options C, D, E, and F. Evaluate the conditions that have caused a stock to soar and see if you can replicate those conditions for another stock that might go unnoticed.
4. Never take the path of least resistance
Falling prey to conventional wisdom is easy — and often wrong. It’s hard to ask tough questions, to go down an unfamiliar path, yet so necessary to get the right answers.
Great leaders and investors never settle, they never ask simple questions, they never cross anything off their list until they have done all the work, asked all the questions, and challenged those around them. They subscribe to the belief that smart people learn from their mistakes, and the smartest people learn from other people’s mistakes. (via)
Here, he uses the example of drafting offensive linemen in the 1980s at a time when the world was just learning about steroids and their effect on the human body. He says the dedicated considerable resources in determining when bodies would begin to deteriorate due to the negative side-effects of steroids, and this similar line of logic can be applied to researching the underlying reason a stock has soared and when it might begin to tank.
5. Understand the four P’s of scouting
There are four types of scouts, and they all begin with the letter P. The first is the “poor” scout, who is easy to identify because he lacks the skills needed to evaluate and is always wrong.
The second is the “picker,” the scout who finds one thing to “pick” on regularly and never lets go. He picks and picks and picks until his evaluation is blinded.
The third is the “production” scout — all this scout does is look at production as the basis of his recommendation. Numbers — whether in football or investing — can tell a portion of the story, but they don’t tell the whole story.
And finally, the last scout is the best one: the “projector.” This scout can evaluate talent and project it forward based on his understanding of the player’s skill set and how it might evolve. (via)
I haven’t included the full article from MarketWatch, just the main bullet points and descriptions. You can follow any of those links above to read the article in full. Michael Lombardi has a new book out titled Gridiron Genius which you can pick up on Amazon.
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Does all of this information apply directly to picking stocks and playing the market? I suppose it can if you take a few steps back. It feels to me more like a motivational talk that’s designed to get people off the couch and involved as an active investor. But the advice is sound, and it’s a pretty good outline for not making shitty decisions.
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