Don't Dribble Your Money Away

By DAVID MOON, Moon Capital Management
April 16, 2006

Two weeks ago the National Basketball Association showcased two of its marquee talents, Shaquille O'Neal and LeBron James. When the Los Angeles Lakers took on the Cleveland Cavaliers, it should have been a stellar weekend afternoon for all of professional basketball, and especially for ABC, which telecast the game.

Should have.

In fact, Fox Sports coverage of the NASCAR race from the Atlanta Motor Speedway outdrew the NBA telecast by 39 percent. That was a surprise, because it wasn't exactly a NASCAR race. The race was rained out. Instead of a race, Fox broadcast the rainout.

They interviewed drivers and talked about cars and clouds and Doppler radar. Imagine 2.5 hours of wet asphalt and guys in baseball caps saying things like, 'Gee, I sure do wish I could get out there and drive the eight-car real fast today.'

But a NASCAR rainout was more popular than the two most popular players in the NBA.

I like basketball, and I used to love the NBA. As a kid, Wilt Chamberlain was one of my sports idols. I was fascinated with Magic Johnson. There isn't a sports fan over 40 who doesn't vividly remember the video of Julius Erving going airborne on one side of the basket, flying under the goal, behind the backboard, then sweeping the ball underneath the other side of the goal for an over-the-head, blind underhanded layup. No rained-out car race would ever outdraw Dr. J.

I lost my interest in the NBA, however, somewhere around the time of Dennis Rodman. So did a lot of people.

Things change.

Too often, investors forget this. They fall in love with a stock. They forget that the conditions and assumptions that initially created an attractive situation may no longer exist.

When investment legend Sir John Templeton said that the most dangerous words an investor can utter are 'this time things are different,' he didn't mean that you should never question or change what you're doing.

The words were not an edict to never sell a stock. He meant that there are certain core precepts that make an asset attractive and these precepts don't change, although the specific investments identified as being attractive often do.

The attractiveness of a financial asset is a function of the relationship between its price and its value. And the value of an asset is simply determined by the amount of cash the asset will generate. The attractiveness is not determined by how long you've owned a stock or 'how good it's been to you.'

The NBA and network television had been good to each other for a decade or more. That history couldn't overcome a situation where pro basketball began to violate the core tenets of attractive mainstream entertainment.

Certain precepts define attractive television sports programming. Having 40 percent of your players with criminal records, as author Jeff Benedict suggests is the case in the NBA, isn't particularly helpful in attracting viewers from either red or blue states, except perhaps those required to wear orange jumpsuits.

Ron Artest's NBA is not Larry Bird's NBA.

By contrast, NASCAR produces attractive programming ' by using a philosophy that once made the NBA popular.

Complacency is an enemy, whether you're talking about televised sports or investing.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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