Huge upside and a downside that doesn’t cripple you may be an investment worth making
NBA Free Agency is the ultimate reality show. Rumors, innuendo, last minute game changes,
etc. Quite fascinating really. The winner gets LeBron James, the loser, a
set of steak knives …
Well not really a set of steak knives for the Cavs. They have a young, talented roster they can
continue building with or without LeBron, though would certainly be better with
him. The Heat on the other hand would
pretty much be destitute.
Regardless, it’s really a binary outcome – you either get
him or you don’t. The former obviously
puts you in a substantially better situation.
But diverting resources to get LeBron hampers your ability
to sign other free agents, who would improve your team. The opportunity cost of chasing LeBron is
enormous where you can’t really do anything until he signs. For example, the
Cavs lost out on Gordon Hayward as they have dedicated themselves to trying
to get LeBron back on the team.
Thus, the argument could be made are you better off going
after lower level free agents who you have a better chance of signing and will
still improve your team? To
illustrate, let’s say the Cavs have a 10% chance of signing LeBron and 75%
chance of signing free agent ABC. Free
agent ABC makes the Cavs a playoff team, maybe even a high seed in the
East. LeBron however makes you an
instant title contender and a possible free agent destination, not to mention
makes you increasingly more relevant.
Point being the upside is so great with LeBron that the
opportunity cost of losing other free agents is totally irrelevant and thus the
argument of using your resources to target more likely lower free agents moot. The Cavs need to and have make this LeBron
trade.
I do need to attempt to tie this back to investing. And I think I can. If you can find an investment, whether in the
market or private or a startup, with huge upside and a downside that doesn’t
cripple you it may be an investment worth making. This may be true even if the likelihood of
success is low and the opportunity cost is marginally high. Good look finding your LeBron trade…
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