Tag: Daryl Morey

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Analyzing the Construction of the Houston Rockets Roster from the Perspective of an Investor

“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.” – Benjamin Graham, The Intelligent Investor

“I believe that the greatest long-range investment profits are never obtained by investing in marginal companies.” – Philip Fischer, Common Stocks and Uncommon Profits

Benjamin Graham, often considered the founder of “value investing,” published the most influential book in investing, Security Analysis, in 1934. The book was, in many ways, written in response to the rampant stock market speculation that led to the great Wall Street Crash of 1929 and comprehensive in laying out the intellectual foundation of value investing, which involves buying assets that appear underpriced based on some form of fundamental analysis. Mr. Graham would go on to be the mentor to famed investor Warren Buffet, as well as publish The Intelligent Investor, a more focused version of Graham’s value investment philosophies, which became one of the greatest selling books on investing.

Philip Fisher, on the other hand, was notable for being one of the founding architects of “growth investing,” a style of investing that is less focused on buying undervalued assets and more so on those that can generate long-term capital appreciation. His landmark publication, Common Stock and Uncommon Profits, published in 1957, placed a premium on companies that were able to grow exponentially versus companies that were simply undervalued. The reasoning is simple; from Fisher in Common Stocks and Uncommon Profits:

“The reason why the growth stocks do so much better is that they seem to show gains in value in the hundreds of per cent each decade. In contrast, it is an unusual bargain that is as much as 50 per cent undervalued. The cumulative effect of this simple arithmetic should be obvious.”

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Assessing the financial impact from the China fallout on the Houston Rockets

This article was originally posted for Red94.net on October 29th, 2019.

By now, everyone is aware of geopolitical firestorm created by Daryl Morey’s tweet supporting the Hong Kong protests. I won’t rehash the events, as they have already been covered extensively by every media publication around the world. I completely support Daryl on the basis of his right to express freedom of speech, and certainly abhor the strong-arm tactics China employed in trying to have Morey fired. Still, the financial impact on the Houston Rockets and NBA from the “tweet read around the world” is not insignificant.

Many people could scoff at the Houston Chronicle’s estimate, with the general line of thinking being if Mr. Fertitta can afford to pay $2.2bn for the team, what’s $10-25 million? But one has to consider the drop in valuation and leverage Mr. Fertitta utilized to purchase the team.

It is no secret that the Rockets have been China’s most popular team since they selected Yao Ming as the #1 draft pick in 2002. Up until this 2019-2020 season, the Rockets donned alternate jerseys that paid respect to the Chinese market rather than their hometown. The team has also played in China three times and hosts the Shanghai Sharks annually at Toyota Center during the preseason. Further, the team has had longstanding sponsorships with several Chinese brands, including sports apparel company Li-Ning, bitcoin mining company Antpool, Shanghai Pudong Development Bank, and, most importantly, media conglomerate Tencent, for which the NBA just enacted a $1.5 billion five-year partnership to stream games in China. So when these Chinese businesses suspended ties with the Rockets, one begins to understand what is at financial stake for the team.