With the 2013-2014 NBA season just concluded, and the recent surge in the Philippine Stock Exchange stock market, I can’t help but compare stocks with NBA players.
Both stocks and NBA players are assets, but not all assets have the same value. In the NBA, general managers gauge the value of players not only in how they contribute to the court but also on how much are their contracts.
With the help of advanced analytics, players are assessed according to multiple metrics. This includes the plus/minus (did their team lose or gain leads or deficits when they’re on the floor), player efficiency rating (a measure of per-minute production) and exact shooting percentage (shooting efficiency which combines 2-pt and 3-pt field-goals and free-throw rates), among others.
But other factors in trading are also as important. This includes player’s age (younger ones have potential, older ones have declining productivity, and injuries may take a longer time to heal. Those approaching their peak ages are likely at the most efficient stage of their careers), how much they are paid, how well they make teammates better, how long they are contracts, and less significant ones such as trade kickers.
For the stock market, we look at the fundamental and technical analysis for every stock, how is the industry performing, competition, and whether it has growth prospects or has saturated in the market. Of course, no one factor determines the value of the stock but various signals and trends that point to a particular direction.
If the market is up today, should I sell for profit or wait for tomorrow if it’s going to go further up? If the market is down, should I buy or wait for tomorrow when I expect the share price hits rock-bottom? In the business of NBA basketball trade, should we trade an expiring contract or risk losing without compensation if a player leaves for free agency or gets injured?
Indeed, as “trade” is the common term between NBA trade and stock trading, another thing common between the two is “uncertainty.”