$37 million.
That’s how much the Los Angeles Lakers paid LeBron James to lead them to their 17th NBA championship. Along the way he earned the championship MVP title as the Lakers celebrated their title in front of…well, nobody. Weird year.
Was it worth it for the Lakers?
Having not won an NBA championship since 2010, they would probably say yes. Forbes magazine estimates the value of the franchise in excess of $4 billion, so one would say they could afford it.
But should they have spent that much?
After all, perhaps the Lakers could have picked up Dort Luguentz for a lot less…ESPN reports Mr. Luguentz earned $155,647 as a shooting guard for the Oklahoma City Thunder in the 2019-2020 season.
But LeBron averaged about 27 points per game, compared to Dort’s 6. Four times the average points…238 times the money.
Value can be a funny thing—and it’s not always obvious.
These days you see a lot of ads promoting how inexpensive various financial products or services are. Free trading, zero cost trading, no load mutual funds, low expense ratios, 15 minutes will save you 15%…the slogans are endless.
Low price is only relevant when purchasing a commodity. By definition, a commodity is a basic good that is interchangeable with another good of the same type. No difference in quality is assumed. Grade A eggs. Gold. Timber. West Texas intermediate crude oil.
But not all common things are commodities. You can buy your hamburger at “the Golden Arches” if you wish. I’ll pay a little more at the Flying Burger and get something that makes my taste buds happy. Yes, put cheese on mine please, with the fries. I’ll pay more because I think there’s a big difference…in taste. And value.
Are financial products and services commodities? Some are. Those would include index mutual funds and index exchange traded funds (ETFs). And low cost trading platforms can be somewhat commodified. Just be careful you understand how quickly and efficiently (or not) your trade will be executed.
But is a financial plan a commodity?
I cannot see how it would ever be so.
Financial planning involves numbers, but any financial plan that relies too heavily on numerical calculations, with little or no room for the hard to calculate reality of human nature is naïve (at best). People and money are not math and they rarely follow a linear or completely logical path.
We get scared. We get bored. We age. We lose focus.
Wise financial planning needs to tilt just a bit towards the pessimistic – we should assume a few bad things are going to happen along the way and make allowances for that.
However, investment plans (operating within the confines of an overall financial plan) should tilt a bit towards optimism. Investors can more easily see the headwinds and problems in the future – elections, recessions, taxes and deficits all loom large. The optimistic outcome (which is the historic norm for the past 100 years) is harder to see. That requires a bit of faith, a faith which expresses itself as a tilt towards optimism in one’s investments.
A good financial plan comes with a good financial planner attached. And a good planner is perhaps the least commodifiable financial service of all.
NBA players are not all created equal and neither are financial planners and the plans they craft.
For your championship season, look for the high value, not the low price.
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