If It Walks Like a Duck and Talks Like a Duck, It Might Be a Bargain

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Published by Rob Furlong

A couple weeks ago, Heisman trophy winner Marcus Mariota led his team, the University of Oregon Ducks, to the National Championship game. During his three years as the team’s starting quarterback, he has accumulated impressive stats culminating in a senior year where he threw for 4,000 yard and scored 40 touchdowns. These results earned him the Heisman Trophy by the 2nd largest margin ever and a handful of other awards. Here’s the interesting thing though; Mariota was widely overlooked as a high school player. One recruiting service ranked him as the #123 quarterback in his class, and in fact the University of Oregon was one of only two schools to offer him a scholarship. How did such talent go unnoticed? And how did the University of Oregon find him? The failure of nearly every school to scout this year’s Heisman trophy winner offers powerful lessons for investors or anyone choosing a professional money manager.

A large reason why Mariota was overlooked was geography. He is from Hawaii. And despite the popularity as a vacation destination, college coaches hate going to Hawaii.  It’s a five hour flight from the west coast and more than ten hours from the east. Very few coaches are willing to invest the time and money to make the trip. Instead, they prefer to crowd into three traditional hotbeds for skilled players: Texas, Florida and California. Recruiting in these states is easy for coaches given the high concentration of available players and it also lowers “career risk” in a position known for very little job security. Like the old business adage, “no one gets fired for choosing IBM,” it’s a lot easier for college coaches to explain an underachieving blue-chip prospect from Texas than an unknown from Hawaii. Even those willing to make the long flight overlooked Mariota because they fell victim to conventional thinking and were only there to recruit hefty lineman, something the state was well-known for.

So how did the University of Oregon find their franchise quarterback? The first reason is a dedication to research. The Ducks spend more on recruiting than most other football programs. In fact, the school spends 33% more than the average member of its conference, the Pac-12. They were willing to invest the time and money to find hidden talent. Football recruiters at the school were also not afraid to challenge conventional wisdom and fly to Hawaii when most believed it wasn’t worth it. The school was a pioneer in finding value in talented players who were being overlooked by almost everyone who chose the safe, easy, and traditional route.

Investors would do well to follow the advice of the Oregon coaching staff. Investing is not simply buying good or well-known companies, it is buying them at discounts to their underlying value. Since the market is filled with many analytical and objective participants, bargains are usually based on irrationality or incomplete understanding. They are often created when investors refuse to look beneath the surface to understand a situtation thoroughly, or succumb to some non-value-based tradition or bias. In other words, true values can be found only when one considers flying to Hawaii to look for a quarterback. When investing or selecting someone to manage your investments, follow the lead of the University of Oregon. Find someone who goes the extra mile to turn over every rock, especially in the fields others are ignoring.

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