Blog post #389
A professional sports gambler set a Jeopardy single game winning record of $110,914 on Tuesday’s episode.
But that one day win is only part of the story.
James Holzhauer has won an astounding $298,687 in 5 wins. His aggressive betting, different game strategy and vast knowledge has resulted in must see viewing. He is averaging almost $47,000 in his other 4 wins, which is far higher than typical winners. For perspective, Ken Jennings averaged $34,000 per night during his record 74 game win streak in 2004.
Holzhauer has turned the game upside down with his strategy. Most contestants start at the top of the board, starting with the small dollar clues in each category. Holzhauer picks the most valuable clues across the entire board first, which can earn him the most money the fastest. This enables him to bet super aggressively if he gets one of the 3 Daily Doubles, which he can bet up to his full winnings at that point in the game. He has repeatedly gone all in with huge bets, even at critical points in the game.
His change in strategy, how he plays the board, is interesting. I wonder why no other contestants, particularly those who have been very successful on the show in the past, have not tried his strategy?
Similarly, for many of our prospects, and now clients, we present a different approach to investing than most had used in the past. However, once you understand it, you see the logic in our investment strategy. It will be interesting to see if future Jeopardy contestants adopt Holzhauer’s strategy in the future.
On Jeopardy, speed and information are key. Holzhauer is very fast with the buzzer, which then gives him an advantage, so he can try to answer the question correctly. And he is certainly well informed, as he correctly answered 129 of 133 attempts, through the 4th game.
In investing, we do not feel that speed or certain information matters. Company specific information is supposed to be public and disseminated to all at the same time. Unless you have inside information, which is illegal, speed should not be an advantage. Earning announcements are generally either before or after the markets open or close. Major financial institutions can react quicker than individuals can, but they all get public information simultaneously. We rely on academic data and historical information for our investment philosophy, so speed is not critical. At times, we feel patience can actually be an advantage over speed.
Holzhauer can have a significant advantage by being faster with the buzzer. However, he cannot control what categories he will face each show and the knowledge or expertise his fellow contestants have. He may be very skilled, but he may face a competitor that is even faster at the buzzer or smarter than he is on certain topics. He can only control his ability.
In our investment strategy for stocks of using asset class mutual funds which are globally diversified, we take the view that active money managers cannot provide added value to you by being smarter than the market, over long periods of time. Active managers do research and charge higher costs to their investors, but extensive data shows that these active managers generally underperform their respective benchmarks.
Holzhauer has made very aggressive bets. So far they have paid off spectacularly. But his overconfidence may cost him a win at some point.
During his record breaking one night win, he bet all his money, about $34,000, early in the second “Double Jeopardy” round. He was far ahead of the two other contestants, but if he had answered the question incorrectly, he would have blown his insurmountable lead. When he made this $34,000 wager, he must have felt that if he answered wrong, he was very confident he would recapture the lead because he was faster at the buzzer and then could answer subsequent questions correctly. He did get the question correct and went on to win. His great confidence has resulted in huge success, so far. To keep winning, he will have to balance his aggressiveness without being too overconfident.
For many investors, investing in individual stocks has great appeal. You think you know what company, store or product will be successful, so you invest in it. Many years ago, before I began this firm, I thought I could identify mutual funds based on their past track records or reading about the money managers. All too often, this overconfidence in our abilities to pick financial winners does not prove out to be as successful as we would hope. Unexpected things happen to companies or sectors that we think are good ones. The world changes. Amazon comes along and online shopping has hurt the stocks of many retailers, for example.
Holzhauer has made huge bets, relative to what others contestants have done in the past. I went back and watched online the previous highest single game winner, from 2010. That contestant bet $7,000 when he had $25,800 and $5,000 when he had $33,600. In comparison, Holzhauer bet his entire $14,600 early in the game, $25,000 later in the game and then wagered $38,314 on the Final Jeopardy question (though he could have bet more), as his goal was to win $110,914, as the total represented his daughter’s birthday, 11/09/14.
Holzhauer is a professional gambler and he may already be wealthy. He obviously is a risk taker. He told ESPN “…my work is similar to an investment bank, except that I’m the analyst, trader, fund manager and day trader all into one.”**
In our investment firm, as we work with clients, we want to take appropriate risks, but not more risk than is necessary. We plan and discuss with you how much risk you need to take, and are comfortable with, to reach your various financial goals.
James Holzhauer is a highly intelligent person and professional gambler. I hope he continues to win, as he is great to watch.
This contestant is playing a game. He may be ok with “risking it all” on one question or taking outsized gambles on his ability to answer a single question, which may lead to huge success or failure.
We feel strongly that broad diversification is prudent and advisable for your financial future. We are not “going all in” on one stock or any particular financial sector.
As we manage your investments and provide you with financial advice, we want you to be comfortable and be able to sleep well at night.
**”Sports Gambler James Holzhauer Shatters ‘Jeopardy!’ Winnings Record”,www.huffpost.com, 04/10/2019 by Ron Dicker
“Professional sports bettor sets ‘Jeopardy!’ record”, www.ESPN.com, 04/10/2019 by David Purdum