This article is about a Premier League football game for the ages, the strange case of an unconventional failure it contained, and the lessons it offers for real estate investment managers.
But first, a quote about lemmings.
Warren Buffet has said that “as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.”
Similarly, John Maynard Keynes said, “worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”
Both sports coaches and portfolio managers know this.
Sports coaches, for example, understand that their career success is not determined solely by their winning record but also by the perception of their coaching abilities. There is substantial overlap between these two factors, but they are not the same thing.
Aware that their employers and fans have long, tightly held beliefs about how the game should be played, most coaches act according to the incentives this creates. They know that risking losing while deploying unconventional strategies can be career-limiting.
Therefore, conventional thinking about appropriate strategies can take a long time to change.
In American football, it took decades for the data showing the value of going for it on fourth down to influence gameplay.
In basketball, it was more than a quarter of a century after introducing the three-point line before teams started to think appropriately about what it meant for shot selection.
In ice hockey, coaches typically fail to act quickly enough in pulling their goalie to gain a numerical advantage in outfield players when they are chasing a game.
The natural desire to win and the highly competitive nature of sports do not ensure optimal strategies. There is a general aversion to riskier, unconventional strategies. As Buffet says, “most managers have very little incentive to make the intelligent-but-with-some-chance-of-looking-like-an-idiot decision.”
Portfolio managers generally act similarly. In equities, many managers eschew cheaper but lower-quality companies. They can present themselves as more prudent and cautious by investing in more expensive companies with exciting prospects. However, the data shows that cheap stocks tend to outperform expensive stocks.
Likewise, career risk mitigation encourages a bias towards prime assets over secondary buildings in real estate. People like to be associated with prime assets; they might perceive them as less risky and feel it is easier to explain or justify holding high-quality assets.
Asset selection can be skewed in a way that supports the perceptions of the portfolio manager but hurts investment outcomes.
What, then can be learned from a Monday night premier league game?
On November 6th, Chelsea, playing away, beat Tottenham 4-1. An instant classic, the BBC reporter described it as “one of the most mind-boggling Premier League games of recent memory.”
Indeed, it was filled with events. Two of Chelea’s goals came very late. Four goals were disallowed. Injuries enforced personnel changes. And two Tottenham players were sent off. After just over an hour of play, only three outfield players who started the match for Tottenham were still in the game, an eventuality that would have been impossible to fathom just a few years ago.
But particularly notable was the strategy Tottenham deployed when reduced to ten and then nine men.
Almost without exception, when a football team goes down to ten men, they play deep and narrow. They restrict the opposition’s space in the most dangerous scoring positions. Typically, this results in the opposition creating many shooting opportunities. But those opportunities are generally challenging as defenders succeed in getting between the shooter and the goal.
While this is the standard approach, the Tottenham manager, Ange Postecoglou, ordered his team to do the opposite. He asked his team to continue playing a high line and press intensely.
A combination of pressure on those seeking to thread passes through to potential goal scorers and an offside trap could limit the number of shooting opportunities created. But the chances created are likely to be good, with few, if any, defenders between the shooter and the goal.
Postecoglou judged this a risk worth taking, perhaps mindful that keeping the game closer to Chelsea’s goal increased the probability of Tottenham creating goal-scoring opportunities when their pressing earned them procession. Coaches today tend to have a greater belief that football is a field position sport. It can be a messy sport, especially in transition. The optimal approach may be keeping that chaos further from your goal and in front of the opponent’s net.
While this approach may have given his team the best chance of taking something from the game, eventually, Chelsea capitalized on their numerical advantage.
What, then makes this a strange case of unconventional failure?
With so many years of conventional wisdom stacked against him, you would have expected Ange Postecoglou to take some serious flak. As a rule, fans do not react well to heavy losses in derby matches. Taking risks and losing usually results in commentators making accusations of naivety.
But criticism of the approach was muted. Indeed, Tottenham fans gave their team a standing ovation at the final whistle.
The reaction reflected the effort levels and entertainment provided by the team. And recent winning form had embedded goodwill.
More importantly, Postecoglou’s beliefs about how the game should be played are deeply held. He is consistent in his aggressive and proactive approach. Playing this way was in line with the principles he has been transparent about.
When asked post-match about the approach, Postecoglou responded, “It’s just who we are, mate.”
Consistency and authenticity generate clarity about his approach that helps nurture buy-in. The result was an unusual level of tolerance for acting unconventionally.
Real estate portfolio managers should take note. While misaligned incentives create persistent inefficiencies and, therefore, opportunity, they can only be exploited by those able to escape the incentive structure. Outperformance is only possible for those willing and capable of doing something others are not. And this requires buy-in from all stakeholders.
There is an urgent need to reflect on the strange case of this unconventional failure. During the recovery from the global financial crisis, the spread between prime and secondary real estate blew out—a persistent inefficiency combined with a cyclical opportunity.
Something similar may happen during this cycle. This is not a mispricing opportunity to exploit today, but when a recovery has taken root.
However, this is the time to consider how you will bring clients and stakeholders with you as you take risks earlier than others.
This is the time to design a strategy you believe in wholeheartedly so that you consistently communicate it authentically.
This is the time to start positioning, so clients trust you to go against conventional wisdom.
