Investing Lessons from College Basketball: The North Carolina Tar Heels

Since returning to his alma mater to coach the UNC men's basketball team in 2003, head coach Roy Williams has picked up numerous accolades, including three national championships.

In the following excerpt from The Motley Fool's Industry Focus March Madness basketball special, contributor Asit Sharma discusses two facets of Williams' coaching technique that can be directly applied to improve your investing skills.

A full transcript follows the video.

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This video was recorded on March 19, 2019.

Jason Moser: OK, Asit, we wanted to get into another part of the show here, talk a little bit about the principles of investing from the perspective of the coaches with our programs, Wofford and UNC. Look at the coaches, what they've done with the programs, and see if we can't draw some parallels there in the investing world. I'll let you kick this off. Roy Williams, obviously, he's had tremendous success there. Following up a legacy in Dean Smith and what he's done with the program through the years. Roy has done a tremendous job as well. Why is that? What parallels can we draw to the investing world?

Asit Sharma: For me, two things really stand out. One is an ability to tinker around. The other is a focus on continuous improvement. For those of you who are not as familiar with North Carolina, Roy Williams was an assistant coach under the legendary Dean Smith. He left to go to Kansas and built a really great program there and was persuaded to come back to North Carolina after Dean Smith had retired. We went through a couple of coaches. He took over the program in 2003. Now, in that time span, UNC has won three national titles. That's the most by far of any team in that time span except Villanova, who's won two titles. UNC is winning national titles at a clip of almost one out of every five titles since Roy Williams came back to Chapel Hill.

If you're a fan, you would realize, if you're close into this, that the win-loss records every year don't really reflect all of this achievement. They're not as great as you might expect. That's because there's a clearly identifiable phenomenon. At the beginning of the season, Roy Williams loves to tinker with his team lineups. He'll try out a bunch of different configurations. It leads to so much consternation among the fan base because we have more losses at the beginning of the season than we think we should with the talent and the system that he employs. Roy Williams is not afraid to experiment, and he's not afraid to lose. That's really hard for most coaches. I think the biggest stumbling block is being able to go into a game not making the win the most important thing. For Roy Williams, the learning experience is the most important thing early on in the season. What can I assess about my team's potential? What might work and what might not? Now, as the seasons go along, Carolina is a very reliable team in terms of peaking at the end of the season. They seem to get better and better from the midway point on through the tournament. I think that's partially because of this ability to take a loss and figure out what works and what doesn't; the study, the retrospective look at configurations, but also the principle of continuous improvement.

Now, I know we've got some engineers, some business consultants, some people who've been through MBA programs who listen to this program, and you're familiar with the Japanese concept of kaizen, continuous improvement. It's a term that gets bandied about a lot. Many teams in basketball talk about this. "We're going to improve every game." But I don't know that they all apply it as seriously as this coach does. When the players attend their practices at the Smith Center -- that's the team's big both game venue and practice venue -- they run through these giant curtains every practice. It's sort of a metaphor that once a player runs through the curtains in the tunnels of the Smith Center that lead to the practice court, they can't run back through without having improved that day on the practice floor. If they have, there's something wrong. So, the whole team has this mentality that, not just from game to game, but from moment to moment, on the practice floor, you should be improving. I think that's a really great principle.

How I'd apply both of these principles to investing is, hey, don't be afraid to lose early and often. Yes, your money is at stake when you invest. But you have to learn. Paper trading is one way. I play Motley Fool Caps. I've learned a lot about investing just by playing that game. There's not much stakes, except that someone like Jason might look at my score and see, last year 33 was my Caps score. [laughs] Now it's somewhere in the high 70s.

You can improve if you're willing to take risks and learn from that. Each investment that you make should be better than the last. What I mean by that, I don't mean that you should magically have an investment that's just a better company. It means you, the investor, should improve your ability. Maybe you spend more time researching this investment vs. the last one. Maybe you post mortem the last investment more than you did the time before that. The more you can educate yourself, learn principles of investing, figure out what went right, what went wrong, every time you invest, you should be able to say to yourself, "I'm better at it this time than the last time I put my money and committed it."

To sum up, tinker around. Don't be afraid to do that in order to learn. Losses are a part of the game. Second, think continuous improvement, but not just as some abstract principle. Really try to improve every time you commit your capital.

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