For NBA fans, watching the Golden State Warriors this season has been nothing short of spectacular. With a record of 73-9, the Warriors are now officially the greatest regular-season NBA basketball team in history. It’s easy to watch Stephen Curry, Klay Thompson and crew in action and chalk it up to sheer talent. Sure, there is plenty of talent to be found on this team (as there is on many of the other NBA teams). However, as Ben Cohen of the WSJ reports, this team and this strategy have been years in the making. Two excerpts shed some light on their strategy:
The data dive yielded many insights, but the Warriors eventually zeroed in on the 3-point line. NBA players made roughly the same percentage of shots from 23 feet as they did from 24. But because the 3-point line ran between them, the values of those two shots were radically different. Shot attempts from 23 feet had an average value of 0.76 points, while 24-footers were worth 1.09…
…The team realized that any possession that ended with a 3-point attempt by Mr. Curry was worthwhile—and that they would never discourage him from taking one. In this, the season of Mr. Curry’s unleashing, the Warriors are shooting 17% more threes than a season ago. Mr. Curry is attempting more than 11 a game. No NBA team had ever had a player attempt more than nine. Last season he hit 286 threes. This season he is on pace for about 400.
Shooting voluminous amounts of 3-point shots can seem impractical. When a shooter goes through a shooting slump, continuing to shoot from long distance can seem foolish. Yet, apparently, the Warriors “never discourage” Curry from shooting from 3-point land.
What is the lesson? If you find a unique edge, relentlessly exploit it!
This is not dissimilar to the findings of John Lewis’ February 2016 white paper Point and Figure Relative Strength Signals. What PnF relative strength configuration leads to the best results over time? To answer this question, the paper ran a test from 1990-2015 in which a universe of 1,000 securities was evaluated based on PnF relative strength signal and categorized into one of four portfolios on a monthly basis. As shown below, the portfolio made up of stocks that were on a Point and Figure buy signal and in a column of X’s generated far better returns than the other portfolios over time. These are the stocks that had the best intermediate and longer term relative strength versus the broad market.
Critics of relative strength may say it is impractical or even foolish to buy stocks simply because they have stronger momentum than the market. However, we have found an edge and we are seeking to relentlessly exploit it.
The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
