Coaches and Fund Managers: Who’s in the Hot Seat?

With the recent firing of prominent coach, Les Miles, of LSU, just 24-hours after a loss to Auburn, it reminded us how investors sometimes base their investing decisions on short-term performance. Numerous studies (e.g., Study 1, Study 2) have linked poor investor performance to short-term performance chasing. When determining whether or not to sell an investment, or fire a coach, the decision should hinge on what has changed from the original thesis that led to the hiring/investment in the first place. In this case, did the LSU athletic director believe that Coach Miles had changed his Tiger stripes, or did he make a call that Miles “just doesn’t have it any more”? We’d hazard a guess that it was the later. People love to go with their gut, to be decisive, and to act rather than analyze.

As with most things in life, a longtime horizon and a clear objective will likely pay off in the long run. Having an emphasis on the short-term tends to promote bad behavior and create instability within advisory practices, or football teams. If investors become solely focused on the short-term, it creates an incentive for managers to take greater risks, or in the case of college football, potentially violate NCAA rules.

Les Miles has an overall head coaching record of 142-55 (a 72.1% win percentage), with 114 of those wins for LSU during his 12-year tenure, including the school’s third NCAA National Championship in program history. The Huffington Post published a report last year titled, The Numbers Don’t Lie: Firing the Longtime Winning Coach is a Bad Idea, essentially detailing what has happened to programs after firing successful coaches.  Let me give you the article in a nutshell….it doesn’t work.

Obviously, the goal in all of this is to win championships, or producing positive alpha, when hiring/firing managers. Unfortunately, fans and investors can be their own worst enemies as a stable long-term view will produce the best results. When it comes to investing, pick your managers based on solid due diligence that is aligned with your long-term investment objectives. Save the armchair quarterback for Saturday and Sunday afternoons.