“Trust the Process”

“Trust the Process”

Brandywine Asset Management commentary for the month of April 2017, titled, “Trust the Process.”

“Trust-The-Proc-Cess” was the chant that sprung up during an NBA game between the Philadelphia 76ers and the Toronto Raptors on January 18, 2017 at the 76ers home stadium in Philadelphia. In a win that night the 76ers displayed a spark of the potential return on a strategy set in place more than three years before; a strategy that in all truthfulness could be called a “losing strategy.”

The strategy was one that others had previously only speculated about doing – losing to win. In the NBA, where only five players are on the court at any one time, one or two star players can drive a team deep into the playoffs or to a championship. And one of the best ways to get a star player is to draft him in the annual amateur draft. In the NBA, the teams with the worst win-loss record in a season get the highest draft picks. So the Sixers’ strategy was simple – lose to win.

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The strategy, later dubbed “The Process,” was put in place shortly after the Sixers hired Sam Hinkie as their general manager. Known for his analytics acumen, the Sixers felt Hinkie could “Moneyball” the team to success. And by all accounts he was extremely successful in carrying out his strategy. Over Hinkie’s three year tenure with the Sixers, they lost more games than any other team. In 2015 the 76ers set the record for the most consecutive losses of any NBA team in history and over the remainder of their 2015-2016 season they became the second worst NBA team of all time, winning only 10 of 82 games.

But there was also a payoff. Over the past three years top draft positions have enabled the Sixers to draft a ‘generational” player, Joel Embiid, the #1 draft, Ben Simmons, last year and other top players (which they have used to trade for top future draft picks). In short, the Philadelphia 76ers are now on the cusp of having one of the best, and youngest, rosters in the NBA.

But unfortunately for Hinkie, he won’t be around to see the payoff of his strategy. League backlash from his strategy, coupled with a new management team at the Sixers, led to his resignation in April 2016. In short, he employed a six-year strategy in an organization with three-years of patience. Essentially, the Sixers’ management panicked just when the strategy began to payoff.

Panic or Patience?

Successful investing also requires patience. Unfortunately for most people, they panic at exactly the wrong time, and pull their money out of their best positions right before the payoff comes. For example, people buying into U.S. equities in early 2000 required more than a decade to show any profit at all. But the average mutual fund investor holds their position for just over three years. This is nowhere near long enough to capture the benefits of equity investing. The result is that the average mutual fund investor underperforms the very funds into which they invest by almost 5% per year (you can read more about that here). While the time frame required for an investment to earn is expected return can be shortened by investing across multiple Return Drivers, success must still be measured in many years, not quarters or months. So when it comes to building an NBA team or investing, patience is not only a virtue, but also highly profitable.
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Additional Reasons to Invest Now With Brandywine

(Performance of the Brandywine CPU)

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(Non) Correlation (highlighted in red in table at right) of Brandywine’s Investment Programs to Other Investment Indexes3

It is this non-correlation – combined with Brandywine’s repeatable investment process and broad strategy and market diversification – that makes Brandywine such a positive addition to most investment portfolios.

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Monthly Performances of Brandywine’s Investment Programs1,4

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