Home court advantage (The Financial Athlete #8)

If you’re watching the NBA Playoffs, you won’t be surprised to find the home team win most of the games. Home court advantage is for real in basketball. It’s equally for real with investing.

In the investing world, home court advantage is when you experience some control over the asset. Being an entrepreneur who runs a business or owning real estate leased to others gives you some control over these assets. In general, it’s wiser to invest most of your money in assets where you can exercise some control. I deliberately say ‘some control’ because it’s an illusion to think you ever have complete control. It’s futile to pursue an unobtainable goal of complete control.

When others and external events completely control the asset, you lose home court advantage. Before you invest in a company you don’t control, make sure management has competence and integrity, a combination of qualities sometimes difficult to find.

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