I was watching the nationally televised NFL Sunday game of the week. It was the clash between an undefeated team standing at 7-0 in the Los Angeles Rams against the Green Bay Packers led by one of the greatest quarterbacks of his generation in Aaron Rodgers. The first half of the game was low scoring compared to the expectation. The LA Rams has an explosive offense but they were only able to put up 8 points in the first half. They entered into half time trailing Green Bay by 2 points, with the score of 10 to 8. The Rams was able to put up some decent scoring in the second half. But Green Bay, with Aaron Rodgers leading the offense, was able to keep up. The Rams ended up scoring a field goal to go up by 2 points in the fourth quarter with about 2 minutes remaining.
ESPN has the win probability of LA Rams at approximately 67%. Now, if I was a betting man, and you give me the probability of a win at 67% for the Rams and the payout is adjusted accordingly, I would have taken the other side. Don’t forget, Green Bay has Aaron Rodgers, over 2 minutes left in the game, and 1 time out. All Green Bay needed was a field goal to take the lead on the game. On the ensuing kick return, the Green Bay receiver decided to run the ball out from deep in his end zone, despite making a late decision to do so with the defenders from the kicking team already running full steam ahead closing in on the ball. The kick returner from Green Bay was able to run it out to the 20 yard line and was met with defenders, one of whom went after the ball in the process of tackling the kick returner. This caused the kick returner to fumble and LA Rams recovered the ball. A few more plays later, LA Rams was able to run out the clock, maintained their 2 point lead, and won the game 29 to 27. Aaron Rodgers and the offense were kept at the sideline and didn’t get a chance to try to win the game for the Packers.
As a viewer of the game, I was surprised. While watching it live, I thought it didn’t look like a good decision by the kick returner to run it out of the end zone. This was before the fumble happened. I’m sure if the kick returner had to do it all over again, he would have chosen to take a knee on the end zone and have the offense start on the 25 yard line. I don’t view it as a good decision for him to try to return the kick for the following reasons:
(1) In this situation, only a field goal is needed. There is plenty of time given the 2 minutes on the clock and 1 time out the Packers still have. In fact, one would think that is more than sufficient time for the Packers offense to match down the field for a touchdown, let alone to get into field goal range. Therefore, there was little need to take risk for yardage.
(2) Aaron Rodgers is the quarterback. Additionally, 27 points were scored by the offense. It isn’t a stretch to think the Packers can once again match down the field to get at least within field goal range.
(3) The kick off was within the end zone. A knee down from within the end zone would have resulted in a starting field position at the 25 yard line. In order for the run out to be worthwhile, the kick returner will need to get beyond the 25 yard line. Given the initial hesitation and the positions of the defenders, that was highly unlikely. Therefore, there was little to no upside from running out of the end zone.
(4) There are unnecessary risks associated with the run out. A fumble can result, which is what happened in this case. Even taking out the fumble, a hit or tackle by the defender is still an additional physical hit to the body that wasn’t necessary to take. Those hits can accumulate over time.
I think you can apply this situation to your professional or investment life and, hopefully, you can learn from the kick returner and assess the situation before deciding if it is a good idea to run out of the end zone on the kick return or just take the knee.
Here are a few situations in which assessing the situation makes a lot of sense before making decisions or taking action:
Close to retirement – how much to save and how to invest the retirement fund
If you are close to retirement, analyze your current expenses and figure out how those expenses might change during retirement. Once you have a sense of the annual expenses in retirement, calculate how much you will need in order to maintain that lifestyle. Don’t forget to factor in pension plan payments and social security payments. Those cash flows can be risked accordingly but they can contribute meaningfully to your retirement. Once you have a sense of how much you will need, see how much you have currently. You should then figure out how to get there. Maybe save more of your current income to get there or invest more aggressively. Conversely, if you are well ahead of the game, then maybe it makes more sense to de-risk your investment portfolio for a higher chance of meeting your retirement target despite ending up with a lower return. Also, you can scale back on the savings and live a life with a higher amount to spend now if you have already saved enough to meet your retirement goals.
Close to making a big purchase such as a house – how to invest the savings
A lot of the points made for retirement can be applied to making a big purchase or engaging in a major transaction such as buying a house. You might have more discretion here than retirement. You can figure out your time frame and then plan accordingly. If you already have the down payment saved and is currently house shopping with an intention to buy within a year, then it probably doesn’t make much sense to invest that money in the stock market subjecting it to volatility or invest that money in a private equity investment with a 5 – 8 year holding period. If you must make a major purchase within two years and are short on funds, then you might need to figure a way to get there. Maybe you can save more, invest more aggressively, or figure out a financing option.
Saving for college – how much to save and how to invest the fund
I am in the mindset here of having the ability to be a bit more aggressive in your investment approach. Obviously, if you have young kids and can have your money work for you for 15 – 18 years you can afford to take on more volatility. However, even with less time I think it might still make sense. Of course we would like to be able to help the kids out with college tuition, especially given the ever increasing cost of tuition. But worst case scenario, even if our tuition savings somehow go to zero, there are still numerous ways for the kids to afford college: choose a school they can afford, take out student loans, obtain government grants, apply for scholarships, and/or work a part time job.
Projects at work – should you take on a project and how much time to spend on a project
When you are given a project or assignment at work, you should always assess why the project was given and how important is the project to your performance. This can help determine how much time to spend on the project. Not all projects are created equal. Some projects might drastically help your career and, thus, deserve your full attention and high quality. Other projects might not really matter and was assigned based on the whim of your manager. It is very important for you to assess the importance of the project to determine how much time you should spend on it. This also applies to when you should volunteer to take on a project. You want to make sure it is worth the time and success can result in a good payout, rather in recognition, money or promotion.
When to negotiate – is the potential outcome worth your time
When I was going back and forth with the seller of the 6th investment property for which I am currently in contract, I needed to weigh the pros and cons of certain items during the negotiation. One item was how much lower the seller can go in the price. Obviously, as a buyer, I always want to get the lowest price which can still get the deal done. After a couple of rounds of price cut concession made by the seller during our negotiation, I wanted to get a bit more. I asked my buyer’s agent to go back to the seller’s agent and ask for an additional $5,000 off. My agent told me that the seller’s agent already said he is taking a commission cut to get the deal done at my current price even without the additional $5,000 off. My agent warned me if I want to press ahead with the $5,000 reduction, not only will they most likely say no, but the seller might then want to entertain another offer. The property fits my investment criteria and it takes time for me to find one that does. I already spent a lot of my time analyzing the property, paid for a home inspection, and spent time with my attorney on the contract. I thought through the pros and cons of going back to the seller for another price cut. Ultimately, I decided that alienating the seller for a very low likelihood of getting an additional $5,000 off wasn’t worth the risk.
When to litigate – is the potential outcome worth your time and money
I was recently presented a situation – should I take part in a legal action against one of my former service providers. When I was renovating my current home, I hired an audio video company to help set up the sound system, television, remote thermostats, and internet connectivity. The person who runs the audio video company ended up collecting money from me but did not provide the equipment or services agreed upon. Not only did this person ripped me off, I later found out he defrauded other customers as well. A few of the customers banded together to hire a lawyer to see if legal action can be taken to recover any of the amounts.
I was approached by this group to see if I want to take part in the legal action as well. I started to weigh the pros and cons. There are a number of cons. There is the legal fee to hire the attorney. There is time required to draft the affidavit, gather the evidence and to answer attorney questions. The upside is that potentially the AV company might do the right thing and make us whole or potentially try to settle the matter resulting in a recovery. Purely from a financial standpoint, it is probably a bad decision to move forward with engaging the lawyer given the dollar and time involved and the fact that the AV Company probably has little to no funds to pay. The monetary outcome might not be worth the time or expense. However, I decided to move ahead anyway. Even if there is no dollar recovery, we might be able to pursuit a criminal case against the AV Company. This can hopefully get the owner banned from conducting any more business in order to prevent him from defrauding future customers.
To the audience: What other situation have you encountered which would make sense to assess the risk vs. reward before moving forward? Have there been situations in which you should not have moved forward but you did and lessons learned from it?
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