Tthesis:

Coach Bill Belichick of the New England Patriots is one of the best football coaches of all-time and his ability to find value in the NFL Draft holds many lessons for investors.

• Wait for opportunities
• Cut losses
• No nostalgia
• Understands valuation
• Avoids overpriced areas

Method to the Madness: How Belichick Rules the Draft

Patiently waits for opportunities:

"Bill Belichick is smart, but sometimes he succeeds just by aiding other teams' efforts to be stupid."

There are times when the market presents unbelievable opportunities to profit (like in the financial crisis of 2008), when many investors were panicking.

The hard part is to be disciplined and wait for opportunities. The patient investor wins when the Mad Money crowd is panicking.

"Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now."

Jim Cramer October 8, 2008

Today's Market:

It's a difficult market due to the premium valuations we see. This market requires discipline to wait for better opportunities. Due to the Fed intervention in the market, assets are fully valued. And a return to normal interest rates may reward the patient investor with better opportunities. However, there are strategies that work in an overvalued market.

(via the Federal Reserve)

Doesn't hold overvalued players: cuts losses quickly

“Bad teams spend heavily in free agency and hold on to their players out of nostalgia far too long,”

Cut losses and have no favorites. Eddie Lampert is a great investor, but his performance in Sears Holdings (SHLD) was clearly not his best investment. When the situation changes, investors would be wise to not play favorites.

Understands valuation:

“Perhaps the most common characteristic of bad organizations is that they make a habit of giving away draft picks to trade up and acquire a player with an earlier selection.”(via Grantland)

A first round draft pick in the NFL draft is akin to an overvalued stock. Investors can place a premium on a high profile name like (AMZN), (FB), (GOOGL), (TSLA), or (AAPL). These companies have premium valuation and may have a potential for higher risk and lower returns.

Stick to a plan;

“There are a few clear processes Belichick takes to accruing extra picks ... but where he succeeds more than most is in sticking to a game plan and avoiding making the desperate decisions that other teams do.”

I am not sure what Bill Ackman's plan was on Valeant (VRX). I'll leave it to the reader to determine.

Again, If you don't have a plan, it's easy to get caught up in the panic or the euphoria of the moment.

"Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now." Jim Cramer October 8, 2008.

Undervalued Assets:

“The Patriots mostly stay out of free agency, choosing to make selective forays for undervalued assets.”

One of the biggest advantages of a value investor in the 2008 financial crisis was the ability to pick up incredible bargains because they had not purchased overvalued shares and had cash.

Stay out of overpriced, overcrowded investment ideas and look for undervalued situations. The media may talk incessantly about companies like (SNAP) or Valeant Pharmaceutical , while undervalued situations like (FINL) or (DDS) elude investors and may offer higher returns with lower risk.

The end result: Success

Investment returns: (via Grantland)

“Strictly in terms of the draft-pick deals he has made, Belichick has acquired 80.6 points of Approximate Value. That's like Belichick getting the first overall pick, the second overall pick, and the 19th overall pick for nothing.”

Belichick is basically the Warren Buffett of finding value in the NFL draft.

And we can all learn something from his methods.

Conclusion:

Bill Belichick is one of the best football coaches of all-time and his ability to find value in the NFL Draft holds many lessons for investors.