Underdog

I am a Yankees fan.  I know, I know, I don’t like me either.  I first became a Yankees fan in 1979.  I was five years old and living on Governors Island (when it was a Coast Guard base) and my father took me to my first baseball game.  I watched the late great Bobby Murcer hit a grand slam to put the Yankees on top of the Texas Rangers.  A memory that will be with me forever.

I was naturally suited to being a Yankees fan.  As you know, the New York Yankees have won more championships than any other team by a wide margin—27, in fact.  People call them the “Evil Empire.”  So if you root for the Yankees, you are rooting for the winners to keep winning.  You are an asshole.

That doesn’t come naturally to most people.  Most people don’t root for the winners to keep winning.  Most people root for the underdog.  The Cinderella story.  That’s what’s great about March Madness—you have a team like St. Peter’s make it all the way to the Elite Eight.  People also bet on long-shot horses and cheer for the tennis player that is behind.

But what was great about the city of New York is that they were in possession of the most dominant franchise in the history of professional sports, and it was never enough.  No matter how much the Yankees won, New Yorkers wanted them to win again, and again, and again.  New York is (or was) a city that roots for the favorite.  Boston is a city that roots for the underdog.  They have an underdog mentality.  But as Boston put together a team that has come awfully close to a dynasty in the last 20 years, Red Sox fans have found that they are not psychologically well-suited to rooting for the favorite.  It’s like a glove that doesn’t fit.

In real life, people root for the underdog, too.  We root for the poor.  We root for the disenfranchised.  We root for small business, as long as it does not become big business.  This is not terribly functional.  It is acceptable to root for the underdog in certain circumstances, but if you root for the underdog in all circumstances, it will inhibit your professional development—and lead to paradoxes.

In my business, the business of securities trading, if you root for the underdog consistently, your career will be very short.  George Soros pioneered the idea of reflexivity—things that are doing well will probably get better, and things that are doing badly will probably get worse.  There are people who root for the underdog in the financial markets—these are the people who will buy a stock on its ass and hope for a turnaround.  Turnarounds are rare.  When you do this, you are betting that the loser will stop losing.  But if you’ve ever known a loser in real life, you know that they never stop losing.

You might have a family member—a brother, a sister, a parent, a child, or a distant relative—whose life is an absolute fucking disaster.  You give them money—and the money disappears.  You take them to rehab, and they never get sober, relapsing over and over again.  What you are doing is betting on the underdog, and that parasite will consume all your money and all your time and all your resources, and then move on to another host.

But there are occasions when people, or companies, or athletes surprise you.  Against all odds, they turn it around and succeed.  The technical definition of this is a miracle.  The world is full of miracles.  But if you are an investor, it’s a low expected value bet.  Nobody buys a single digit stock with the knowledge that it will take a miracle to turn it around.  But people do it all the time.  And how hard is it to bet on the favorite—for the winners to keep winning.  It does not come naturally to us.

I have been an investor for many years.  But I don’t just invest in stocks or bonds, I invest in people, too.  But to invest means that you’re expecting a rate of return.  If you pour time, money, and resources into someone without expecting a rate of return, that’s not investing, that’s charity.  And there is a place for charity.  Charity can ease someone’s suffering, if only for a moment.  But if you view the world through the lens of an investor, investing in people is not much different than investing in stocks—you want to watch them grow over time.  The difference is that people will not pay you interest or dividends—the return you get is the satisfaction derived from watching someone succeed.

Being an investor—in people or stocks—requires a belief that the winners will keep on winning. A lot of people erroneously believe that the business world is a game of numbers.  It really isn’t—it’s all about people.  If you are investing in a startup, the single most important factor is the character of its management.  I have a friend who invested $25,000 in a friends and family round of an exercise bike company.  That $25,000 turned into $9,000,000.  That company, of course, was Peloton.  He invested because he knew the CEO personally and he believed that he was uniquely qualified to execute on this idea.  It was an investment that was entirely driven by character.

I’ve never understood our collective aversion to big business.  After all, large corporations can achieve economies of scale and provide products more cheaply and efficiently.  But we hear constantly about how all corporations care about is the bottom line.  I’ve worked in the public sector, and I’ve worked in the private sector, and I’ve worked in small business.  Lehman Brothers was the Bank of Evil, right?  Look, banks (and corporations writ large) are big dumb organizations and do dumb things.  But they are not inherently evil.  And they care for their employees—especially the productive ones.  During the 2020 presidential campaign, Kamala Harris boasted that she had never worked in the private sector.  That’s pretty small-minded, and also a shame.  She might have found that her experience was something she did not expect.

I don’t know about you, but I root for the winners to keep winning.  And it’s not like I’m a dick.  I want everyone to succeed.  But resources are scarce—both time and money—especially time.  I don’t do long-shot bets.  I don’t bet on miracles, because hope is not a strategy.  The other thing about betting on the underdog is that the underdog does best when left to his own devices.  When you co-sign someone’s bad behavior, you’re doing what is known as enabling.  People can’t succeed if they aren’t allowed to fail.  And failure is one of the world’s great motivators.

Go fuck yourself,

Jared

Music Recommendation: Hey, howdy, the party last Friday was a massive success. Here is the music from it—enjoy.

P.S. We’re Gonna Get Those Bastards will always be free.  Feel free to forward to whoever you like.