How The Lakers Taught Me To Look For What’s Missing In Order To Invest Successfully

At the age of thirteen, my son, Lucas, was not only a rabid sports fan but also a shrewd negotiator.

So when I dragged him to Los Angeles for the opening of Kip Fulbeck’s show, MIXED: Portraits of Multiracial Kids, at the Japanese American National Museum, Lucas made sure he got a good deal.

Now, mind you, he was IN the exhibit and got to see his picture projected onto a screen the size of South Dakota. He even got a shout-out from Kip himself during the presentation to a packed house.

And yet, I STILL had to bribe him.

In this case, “pay-to-play” meant two things …

First, we attended a Lakers game, in which we sat directly behind Uncle Jack (Nicholson, that is).

Unfortunately, we were about a thousand feet up in the air — albeit directly behind Uncle Jack — sitting in (I’m not kidding) the very last row of seats at the Staples Center. (Final score: Lakers 106, Timberwolves 94, Nosebleeds 2)

Second, we bought tickets to attend the Lakers Fan Jam; an event held the following day at the Los Angeles Convention Center.

These tickets were even harder to score, but luckily, we were given the heads-up by a West Coast friend and had purchased them weeks before.

Lucas couldn’t wait to get to the Fan Jam, and that morning I had to assert a full-court mom press just to make sure we got breakfast. We arrived at the convention center soon after and joined in with the yellow and purple throngs.

True to its name, the Fan Jam was jammed with fans.

We queued to enter, and then we queued dutifully to sign waivers. There were ropes and stanchions everywhere for crowd control — at the dunking station, the free throw station, the bungee-running station.

Everywhere we looked, we saw nothing but people standing in line.

The line to take your picture with the trophies was longer than the TSA line at Newark Airport on a Friday afternoon, as was the line to take your photo with a cardboard cutout of a Lakers player. There was an even longer line for an autograph from a couple of cheerleaders (ask me someday to deconstruct NBA cheerleading squads — I have many interesting theories).

It took me a few minutes, but after a little while, it hit me like a basketball to the side of the head:

The one thing that was glaringly absent amidst this purple and yellow mob was the Lakers themselves.

That’s right, the objects of fandom, the raison d’être for a Fan Jam — the players — were nowhere to be found. Not a one. As the man with the megaphone explained, autographs were to be randomly distributed as prizes throughout the day.

WTF?

We could have seen cardboard cutouts and big yellow foam fingers without ever leaving Manhattan.

And that is exactly the point: Sometimes, what’s most important is what’s missing.

Which is why whether you’re at a Fan Jam or at a meeting with a company in which you are considering taking a position, ask yourself, “What’s not here?” If there were a guy with a megaphone, what would he be saying is not happening?

Some noteworthy examples from my time as a money manager:

After sitting through a PowerPoint presentation choked with graph after graph, I realized that there was no mention of cash flow. Nothing. Surely a company parsing through more data than needed for a space shuttle launch should talk about how much cash flow they created? A simple question clarified the omission.

Sure enough, the company hadn’t generated free cash flow since the Pleistocene.

Another company bragged about buying back 25% of its shares outstanding due to all the free cash it generated and returned to shareholders. Noticeably absent was a mention of the net reduction in shares outstanding. Turns out that management issued itself so many shares that the buyback merely kept the share count from creeping up. Management was taking shareholder free cash and buying back stock to pay themselves.

Nothing to brag about, in my book.

When we visited a company’s manufacturing operations, I always checked for two things: prominently displayed and up-to-date safety statistics (and by this, I don’t mean Soviet-style workplace exhortations) and manufacturing stats displayed at each workstation. Over the years, I learned (and had confirmed by both CEOs and insurance risk managers/auditors/underwriters) that companies that pay attention to their safety record tend to be good operators and on top of their manufacturing processes.

Not there? Red flag.

I also looked for manufacturing lines that kept track of their output, downtime, and quality defects and kept this feedback loop right where the workers who generated the data were. This was a sign that they were interested enough in their processes to monitor and thus improve them. Without data, there’s no way to know if trends are better or worse, or how they might be changed.

So remember, you’ll learn more by looking for what’s missing than on what’s staring you right in the face.

Photo credit: Kip Fulbeck