“Sitting quietly, doing nothing, spring comes and the grass grows by itself”
-Zen Proverb quoted by Phil Jackson in Eleven Rings: The Soul of Success
It’s no surprise to our regular readers that I enjoy the overlap of sports with investing. Moneyball by Michael Lewis was a great example of how a baseball team could be successfully constructed using principles that were very similar to those used by value investors. Jonah Keri’s The Extra 2% examined how the rigorous use of data to analyze the success or failure of decisions helped turn around the Tampa Bay Rays. I wrote shareholder letters using those books as examples to discuss the Oakmark approach to managing our portfolios and our people. My vacation reading this year included Eleven Rings: The Soul of Success by Phil Jackson. Phil, for those of you who don’t follow the NBA, was one of the league’s most successful coaches, winning a record 11 titles in just 20 seasons. And the first six of those titles were with the Chicago Bulls, which is why he is revered in my hometown. Like the other books, Eleven Rings’ stories about motivating a highly talented group of individuals to achieve success as a team seem very similar to the challenge of running a successful investment firm.
If you watched any March Madness, you no doubt saw the NCAA public service messages stating that most of the 450,000 collegiate student athletes end up going pro at something other than sports. At the bottom of the athletic pyramid are 35 million kids, about two-thirds of the under-18 population, playing youth sports. Over half of high school students, 7.7 million, play for at least one school team. Less than 6% of high school athletes will play on a college team (all colleges, not just D1). And just over one-in-one-thousand college athletes will make their living from a professional sports career. Yet most of us who played youth sports had high aspirations. A study done by Georgia State found that 59% of high school football and basketball players believed they would get a college scholarship1. The real math is daunting: 17,856 high school basketball teams, only 351 D1 college teams. Thought of another way, if D1 colleges selected their teams from a pool that only included the top player from each high school team, over two-thirds of those high school stars would fail to get scholarships. Given what I observed when my kids played youth sports, many of the parents were as blind to the true probabilities as their kids were!
So what happens to those unmet athletic aspirations? At Oakmark we believe the competitive fire still burns and that it creates a drive to excel in non-athletic activities. Oakmark is full of frustrated athletes. Two made it to D1 soccer and baseball, several others achieved success in D3 football, basketball, and hockey. Many of us played on high school teams. My love of baseball faced the harsh realities of the athletic pyramid when I tried and failed to make my middle school team. Despite all of us eventually failing in our dream to become pro athletes, the important life lessons of commitment, goal setting, discipline and self-sacrifice for the benefit of the team were learned through athletics. And as parents and coaches, we try to pass those values on to our children.
So it was especially disappointing to read in Phil Jackson’s book that his biggest challenge in coaching was to get his players to stop playing as individuals and instead focus on what was best for the team. Perhaps that lesson is harder to learn at the peak of the pyramid. Athletes as talented as Michael Jordan and Kobe Bryant were no doubt encouraged as youngsters to carry their teams by relying on their own talent. And until they were competing for NBA Championships, that worked. But at the peak of the pyramid, individual talent isn’t enough.
There’s No “I” in Oakmark
Chicago Bulls fans still remember one win over Phoenix: trailing by two points with seconds remaining, John Paxson hit an open three-pointer to win the game and the 1993 NBA Championship. Though it was a truly remarkable shot, what was even more remarkable was that, with the game on the line, Michael Jordan passed the ball. Phoenix double- or triple-teamed him, rendering his usual late-game heroics nearly impossible. Instead of fighting the odds, he passed to Scottie Pippen, who in turn passed to Horace Grant, who then passed to a wide-open Paxson. It was a clinic in team basketball. Jackson referred to that victory as one of the most satisfying of his coaching career. Speaking of the journalists who covered the Bulls, Jackson said: “what they missed was the real story: the inner journey the players had gone through to transform the Bulls from an ‘I’m great, you’re not’ team into a ‘We’re great, they’re not’ team.”
The investment profession, like sports, has many statistics that measure individual contribution. That differs from most businesses where the judgments about who is adding value are largely qualitative. Even the most junior analysts at an investment firm can measure the profits made from their stock recommendations. That creates a temptation, to which some firms succumb, to create an “I’m great, you’re not” culture. Some firms use short-term stock price performance as the primary metric for determining their analysts’ bonuses. Unfortunately, many of those firms find that with everyone focused on producing better stock ideas than their colleagues, nobody is focused on the results actually achieved by their clients.
At Oakmark, our professionals learn quickly that the team is more important than the individual. Bonuses for new analysts are not based on the performance of their ideas, but rather on whether or not they can do research the Oakmark way. Our analysts are also explicitly judged on whether or not they are elevating the performance of those around them. When a stock performs poorly, it is a problem for all of us, not just the analyst who recommended it. We all have an opportunity to prevent a stock from getting purchased; so losing money is a group failure. Nobody financially benefits when somebody else makes a mistake. What Jackson referred to as a “We’re great” attitude can be seen at Oakmark in the way the group takes pride in how our Funds perform relative to competing funds, rather than how their own recommendations perform compared to those of other analysts. Professionals who don’t have a team first attitude don’t succeed at Oakmark.
Delegate to Involve Everyone
In discussing the challenges of getting a group of players to buy into the supremacy of the team, Jackson speaks of the need for each player to recognize the importance of his role, which required delegating responsibility to his players. He says, “After years of experimenting, I discovered that the more I tried to exert power directly, the less powerful I became. I learned to dial back my ego and distribute power as widely as possible without surrendering final authority. Paradoxically, this approach strengthened my effectiveness because it freed me to focus on my job as keeper of the team’s vision.”
An attribute of Oakmark that many find surprising is how horizontal our structure is. New analysts are taken aback