Buy the Noise

In July 2010, sports fans either hated LeBron James or they loved him…

And I’m sure it was more hate than love at the time.

LeBron had already established himself as one of the best players in the National Basketball Association (NBA) after playing seven seasons with the Cleveland Cavaliers. His statistics were incredible. And he was even voted as the NBA’s Most Valuable Player twice over that stretch. But he was never able to get over the hump and deliver a championship to Cleveland fans (mostly because of a lack of talented teammates).

So in July 2010, LeBron had a decision to make. He could either resign himself to staying with the Cavaliers or join another NBA team. ESPN aired a live event where LeBron made his decision public to millions of viewers, which is now known as The Decision.

After weeks of speculation, ESPN aired a live event where LeBron chose to sign with the Miami Heat instead of the Cavaliers. Fans were outraged.

There were fans burning his jersey. Sports analysts were saying he could never be considered one of the greatest players of all time because he was taking a shortcut to success. The owner of the Cleveland Cavaliers, Dan Gilbert, even wrote a letter to Cleveland supporters bashing LeBron. Gilbert went as far as to call LeBron’s signing a “shameful display of selfishness and betrayal.”

Fast-forward eight years…

LeBron is now a three-time NBA champion. He is almost unanimously considered the best player in the world. It’s likely he’ll go down in the history books as one of the greatest ever.

At the end of the day, folks care about results. Sports fans care about championships and breaking records. The rest is just noise.

Consider another example from another one of America’s favorite sports heroes… Tom Brady.

Brady is the quarterback for the New England Patriots, a National Football League (NFL) team. He has been to eight Super Bowls and won five of them – far more than any other quarterback in NFL history.

But back in early 2015, there was a lot of controversy surrounding the star quarterback. You might have heard of the infamous “Deflategate.” During a conference championship game, he and other members of the Patriots organization were accused of deflating or knowing about deflating footballs to give themselves an unfair advantage.

(Never mind the fact that the referees had hold of each and every ball all game long, and not one of them stopped the game because of the unfairness of the ball.)

Brady was ultimately suspended for it and, as with LeBron’s decision, there was a lot of talk about how this would hurt Brady’s legacy.

Talking heads on TV said that his legacy would be negatively affected because he would be viewed as a cheater and could never be considered the greatest of all time. Many despised Brady.

Again, fast forward to today… No one is talking about deflated footballs. We talk about his championships and his dedication to winning. We talk about him being the greatest. That’s it.

Whether you’re talking about sports or finance, people overreact in the short term… All they really care about in the long term is results. Investors do this every day.

If you’ve been following the news lately you’ve probably heard about this controversy… Footwear and apparel giant Nike (NKE) recently decided to use ex-NFL quarterback Colin Kaepernick as its spokesperson for its “Just Do It” campaign.

Kaepernick is a controversial figure because of his protests where he would kneel during the national anthem. Some applauded Kaepernick’s protest. Some criticized him for it.

Regardless of how you feel about Kaepernick, Nike using him in its campaign was a risky strategy that would obviously evoke a lot of emotion. Once the ad was revealed, Nike lost about $4 billion in market value.

The immediate backlash from the ad was substantial… The NikeBoycott hashtag trended on Twitter. President Donald Trump chimed in, tweeting “What was Nike thinking?” There’s even a mayor of a New Orleans suburb that is banning the city’s parks and recreation department from purchasing Nike products.

Less than two weeks later, Nike has regained the $4 billion in market value it lost and its stock is currently at an all-time high.

I’m not surprised. A report from Edison Trends stated that Nike’s online sales jumped 31% from September 2 – the day it launched the ad – to September 4. Over the same period in 2017, sales only increased by 17%.

Despite the noise in the mainstream media and on sites like Twitter, it was clearly an overreaction.

Think what you want about Kaepernick and Nike’s position on social issues… but you can’t ignore results. Investors who bought Nike’s stock when it dipped because of the ad are looking pretty smart right now.

Separate what’s news from what’s noise in the markets. Don’t follow the crowd. Buy the noise.

You can make a lot of money by taking advantage of other people’s overreactions.

What We’re Reading…

Here’s to our health, wealth, and a great retirement, 

Dr. David Eifrig and the Health & Wealth Bulletin Research Team 
September 12, 2018