When to go for it

By DAVID MOON, Moon Capital Management
December 2, 2007

Every fall, a friend of mine wanders outside his normal area of considerable expertise and suggests that football coaches are missing an obvious opportunity to significantly increase their odds of winning games. It is easy to dismiss his rants since, as a New York Giants fan, he obviously couldn't know much about the game.

His thesis is built on a study by University of California at Berkeley economist David Romer. The paper, published in the Journal of Political Economy, concluded that NFL teams' choices on fourth down significantly decrease their chances of winning. He goes into great detail about down, distance and field position, but Dr. Romer's general finding is that teams kick field goals and punt way too often.

In preparation for the SEC Championship game yesterday, I finally sat down and read the study.

An academic statistical study on football, complete with T-statistics, confidence intervals and all sorts of other professorial numbers is a unique read. I won't go into the details, but I do have a confession to make.

It makes an awful lot of sense.

Here is one anecdotal situation from the paper.

Assume a team faces fourth-and-two on its opponent's two-yard line early in the game. If they kick a field goal, the odds are almost 100 percent that they will score three points. If they try for a touchdown, they have about a three-sevenths chance of scoring seven points. Therefore, each decision has the same expected value in terms of the number of points it will produce.

Yet if the team goes for it on fourth down and fails, its opponent will receive the ball on its own two- or one-yard line, as opposed to receiving a kickoff following a successful field goal attempt. If the odds are that you are going to score the same number of points (3) over the course of a season regardless of which decision you choose, why doesn't every coach choose the course of action that, in the event of failure, would leave the opponent in worse field position?

Because they're afraid it would make them look stupid.

Here's a different and obviously much less important question: Why don't investors buy attractive stocks after significant, irrational price declines? For the same reason: They're afraid it might make them look stupid.

It happens all the time. Analysts make positive comments about a stock's valuation, then finish with, 'But we don't recommend purchase until the price begins to show some strength.' In other words, they're afraid of looking silly.

Professional fund managers proclaim that their goal is to make money. But their actions don't always support that claim. Like sheep, institutions regularly buy the same stocks or industry groups simply because those stocks are in a particular index or because everyone else is ' even if those stocks are grossly overvalued.

And they regularly ignore attractive stocks simply because they are out of favor. But being out of favor is often what makes the price attractive in the first place.

They don't mind being wrong, as long as everyone else is wrong. That's the safety-in-numbers fallacy. They aren't as concerned with being right as they are with not being alone.

Especially on fourth down.

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