Fribble NFL vs. NYSE

By Paul Commins (TMF Buster) (idxbuster)
Wednesday, February 9, 2000

It's remarkable, when I think about it, the number of common traits shared by the National Football League and the New York Stock Exchange. In particular, both institutions satisfy some very fundamental human drives:

1) The urge to gamble. Frequent NFL betters and active stock traders have a lot in common. Both are working against a reasonably efficient market. It's not enough just to pick the winning team (company). To be successful, you have to pick the one that exceeds the betting line (expectations built into the current stock price). Without some "inside information" or expertise -- and some would argue even with it - the odds of beating the spread (market) are less than 50-50 due to cost of the bookie's "juice" (broker's commission).

Moreover, it's surprising how many betters (traders) don't understand this distinction. I recently heard a well-known sports radio talk show host griping about his NFL betting losses. He minimized his failings by pointing to the "bizarre" recent trend in which the favorites had failed to beat the spread more than half the time. Yes, I'm sure he was serious. And whenever I happen across an investor who can't figure out why the price of his stock has just dropped on news of strong earnings, I'm pretty sure he doesn't get it either.

And finally, I never seem to run into any betters (traders) that are losing money. Do you?

2) The urge to be dogmatic, to argue and to choose sides. What more universal social pastime is there? And as we all know from painful experience, anyone can play, even those who have absolutely no knowledge or insight of consequence! Everyone is an expert on the latest titanic struggle! Who wants to spend the cocktail party talking about this year's Green Bay Packers (S&P index funds)? What's to choose? Let's talk about the St. Louis Rams (! Will they be exposed? Are they over-rated? What's your opinion? Be sure to state it with conviction, as if you have some unique insight!

3) The urge to follow a good story. Both the NFL and the NYSE provide an endless diet of emerging stories. TV's content czars can only dream of making up stuff this good. And don't forget the dizzying array of continually updated numerical summaries. Who cares if most of 'em are meaningless in the larger context? Let's pick one and follow it. Daily! Even if sports (business) doesn't grab you, you'll still run across some pretty compelling human interest stories, unless Brent Musberger (Stone Phillips) is your TV "color man" in which case you'll get all the fake human interest you can stomach in the first 30 seconds and be eternally conditioned to vomit in response.

4) The urge to display loyalty. In a world short of true heroic opportunities, the next best thing, these days, is going to bat for your favorite losing team (stock). Step forward in your conviction and take the lumps for your men! The best part is that -- unlike epic heroes who give their lives for victories not yet won -- you might actually live to see the New Orleans Saints (K-Mart) turn it around! Can anything be sweeter than a life's loyalty vindicated?!

5) The urge to jump on the bandwagon. Every year, streets and shopping malls across America are over-run with jackets featuring the logo of the latest Super Bowl winner. Similarly, no investor will ever want for a year-end summary of the top performing mutual funds. In fact, if you look hard enough you might even find a listing based only on last year's results! There are guaranteed to be some truly awesome numbers on the top of this list! Where do I sign?

Given this apparent equivalence between stocks and ball teams, should we all abandon The Fool, surf the sports sites, and find ourselves a discount bookie? Not so fast. I left out a few things:

1) Betting on the stock market provides capital necessary for growth. It contributes broadly to economic well being. Betting on football makes bookies wealthy.

2) The expected value of any sports bet is negative. If it were positive, no bookie, casino, or horse track would take the bet. These are all zero sum games. The expected value of most stock market bets is the average market return. No one knows what this will be in the future, but if the past is a reasonable guide, your odds are much better than 50-50 of making some money on long-term bets -- the longer the bet, the better the odds. Over the long haul, the economy is likely to grow, and to the extent that it does grow, the market will not be a zero sum game.