Like many people, I shelled out close to $100 to watch the Mayweather-Pacquiao fight. I am really not a boxing fan, although I have some fond memories of big Ali fights from my youth.
I was intrigued by the hype and, to be perfectly honest, the mindboggling payday, particularly for Mayweather. I was fascinated by the deal Mayweather had cut and how much it was potentially worth ($180 million). As I reflected more upon this, particularly after seeing Mayweather interviewed later after the fight, I realized there were some important lessons for investors.
In my book "The Philosophical Investor - Transforming Wisdom Into Wealth,"
I talk about a concept I call the Munger Moment.
Charlie Munger, Warren Buffett's brilliant partner in running Berkshire Hathaway, said the following:
"Our experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the results of that lifetime.
A few major opportunities, clearly recognized as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables.
And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past."
If a $180 million payday isn't a Munger Moment,
then I'm not sure what is. Mayweather executed this brilliantly. Let's analyze the important components of the Munger Moment:
Knowing when the odds are in your favor
After many years of the boxing world clamoring for those two to fight, Mayweather waited for the perfect set of conditions to coalesce to capitalize on it. He was undefeated, he announced he would have one more fight left in him after this one, and he created a very short window for people to buy tickets and participate. He knew that prospective customers have many more entertainment options these days and a much shorter attention span so he needed to prey on their impulsiveness by creating a scarcity value of time. He also made sure to participate in all of the revenue streams created by the fight.
From an investor perspective, opportunities in which the rewards dramatically outweigh the risk are few and far between and when you can recognize them you should do what George Soros said to Stanley Druckenmiller: "Go for the jugular." Clearly Mayweather did.
Mayweather is a master at studying his opponents and the environment at large. His undefeated record is a testament to this. It's clear that Mayweather is a much deeper person than meets the eye. He analyzed his strengths, weaknesses, the economic environment, his brand and positioning and determined now was the time to act.
Investors as well need to understand the operating environment, investor sentiment, how businesses make money by being aware of different profit models and have a good handle on supply and demand. When all of these come together in which investors are retreating, competitors are folding up shop and distressed sellers are prevalent, then a great deal of money can be made when conditions improve.
Patience and prudence
Mayweather was able to wait many years to strike and do it at a time of his choosing. For his age and the number of fights he has been through, Mayweather is in incredible shape. Like all great investors, he focused on protecting his downside first. By studying his opponents and knowing himself he was able to fight defensively and wear his opponents out until he created windows of opportunity and vulnerability he could exploit as they tired and let their guards down.
By avoiding buying when euphoria runs rampant a successful investor can have the resources when most everyone else must sell to raise money or because they fear losing more money.
Once the odds are in one's favor and one has the resources then all that is needed is courage. Mayweather clearly hasn't lacked courage given his extraordinary track record. One's financial outcome can be changed dramatically for the better if one is able to recognize a Munger Moment and have the courage to take advantage of it when the time is right. Unlike Mayweather, however, one does not need to be 48-0 to take advantage of a Munger Moment. We only need one, two or three in a lifetime to do very well.
If you would like to see this concept expressed in more detail, then please check out this video
I put together.
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