The Knicks, Phil Jackson’s narrative fallacy, and your investments

A couple weeks ago I attended my first New York Knicks game of the season. The Knicks played hard, coming back from a first-half deficit of 16 points to take a brief lead in third quarter before losing by 3 points. After starting the season with a respectable 22–22, the Knicks have now lost 12 of their last 14 games. Their head coach, Derek Fisher, was recently fired and their star player, Carmelo Anthony, has had another injury-plagued season, missing seven games so far this year. For solace, Knicks’ fans have poured their hopes into a 19-year old from Latvia, Kristaps Porzingis, who, although prodigiously talented, is still a rookie.

In short, the team many people thought was the turnaround story of the NBA a month ago — after winning only 17 games last year — has turned out to be lousy. And while the Knicks could still right the ship, string together some wins and make the playoffs, the likely outcome is that this season will turn into another disappointment. According to ESPN, the Knicks currently have less than a 1 percent chance of making the playoffs.

The Knicks’ shortcomings, however, don’t seem to be entirely the players’ fault. Although injuries have clearly affected his play, Anthony is still one of the best players in the NBA, having been recently named to his 9th All Star game. He, along with the afore-mentioned Prozingis and other players on the team, such as Arron Afflalo and Robin Lopez, should be enough for the Knicks to be a more competitive. So what’s the problem?

The team’s lack of success may rest with Phil Jackson, the Knicks’ President, who as a coach with the Chicago Bulls and Los Angeles Lakers won a total of 11 championships. Jackson has attributed much of his past success to what is known as the triangle offense, a system of basketball that relies heavily on creating spacing between players and movement without the basketball. It’s a free-flowing form of offense that doesn’t rely on set plays to score. But it can also be extremely confusing to understand and implement for players unaccustomed to its philosophy. Jackson has steadfastly supported the triangle during his nearly two years overseeing the Knicks, and in Fisher, hired a former player who understood the offense’s tenets. Even after Fisher’s dismissal, the interim head-coaching position was given to another Jackson acolyte, Kurt Rambis, who worked with Jackson in Los Angeles and is well-versed in the offense.

All this makes clear that Jackson truly believes that the triangle was a major reason behind his success as a head coach. He’s convinced that the system works, regardless of the level talent inherent in the players assigned to run it.

The awkward fact remains, however, that Jackson’s success as a coach may have been due to reasons other than his offensive strategy. It’s important to note that while in Chicago, Jackson had Michael Jordan and Scottie Pippen running the triangle, and in L.A. had the luxury of putting Kobe Bryant and Shaquille O’Neal on the court to implement the offense. And so while the triangle may have played an important role in his success as a coach, it’s hard to overlook that the Knicks do not currently have any player nearly as good as Jordan, Pippen, Bryant, or O’Neal, who are some of the greatest players ever to grace the game. And it’s difficult to see how any coach, regardless what offense system he or she chose to implement, could have met with anything but success with those players.

In my opinion, Jackson has created a narrative fallacy for his success as a coach. In other words by assigning such prominence to the triangle, he has simplified the truth behind his success. In his book, The Black Swan: The Impact of the Highly Improbable, the writer Nassim Nicholas Taleb, describes the narrative fallacy as a mental pitfall:

Associated with our vulnerability to over-interpretation and our predilection for compact stories over raw truths. It severely distorts out mental representation of the world.

Through such simplification, the narrative fallacy can lead one to believe that s/he can know what will happen in the future better than s/he actually can. An explanation has been formed by weaving together a sequence of facts to form an easily remembered narrative. Where the fallacy is harmful — and this I believe to be the true problem Jackson confronts — is when it increases the impression of our understanding of the future. In Jackson’s mind the triangle equals success. It doesn’t matter the caliber of player running the system on the court; he filters out information that challenges his belief in the triangle. In his mind it has worked before and will work again.

The truth is that we all susceptible to narrative fallacies. The world is a complicated place, and narratives help make events, and in particular our successes and failures, more understandable. As investors, we engage in this type of behavior all the time. Our past experience shades our understanding of current events, causing us to cast aside the nuance inherent in similar-looking, but different, occurrences.

All of this means that when thinking about your investments, try not to get caught up in a narrative about why your portfolio us up or down. While it is interesting to try and uncover the causal link between events to understand how the world works, try and recognize that this should only be done for enjoyment’s sake and not to predict what the market will do in the future. Keep your portfolio diversified. Different asset categories do well in different years. Don’t become too wedded to any one asset class or sector to grow your wealth.

Getting back to Jackson, Knicks fans are learning a truism that good investors always keep in mind: past success doesn’t always mean future achievement. If your investment portfolio (e.g., the Knicks) is weighted too heavily in any one asset class (e.g., the triangle) due to its past performance (e.g., Jackson’s championships), you should think hard about making changes to its allocation.

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