On April 9, 2019 James Holzhauer broke the figurative bank on Jeopardy by winning $110,914 in one day. The previous one day record was $77,000. James did it by going after high value clues first, by seeking out the Daily Doubles, by betting heavily when he found them and by not guessing at clues he didn’t know. By executing this strategy flawlessly James froze out his opponents with a commanding lead before Final Jeopardy.
The next night Laura found herself in a position to challenge James. She hit upon the last Daily Double, giving her the chance to prevent a runaway and to position herself to potentially take the lead. She did not use the opportunity properly. Laura either didn’t fully understand her goal or the risk she faced. Below are the contestants’ scores and the points remaining on the board at that juncture:
Laura bet 7,000. This was smart because a correct answer would have left her with 19,000, enough to insure that if James ran the table and ended up with 36,800 she could not be frozen out before Final Jeopardy (FJ). It was a good play, but not the best play. Laura could have positioned herself better to win the game. That is the goal, to win the game. You’re in it for the Cadillac Eldorado, not the steak knives.
Betting less than her full amount did not help her in any way. Losing a bet of any size would have put her out of the running for the win. Had Laura bet it all and been correct, her post Daily Double score of 24,000 would have left her with the smallest hill to climb for the lead. Yes, she had to hit a lot correctly for the win, but there was no other option. (That would have been crucial because FJ turned out to be easy.)
Laura did get the Daily Double wrong, but that doesn’t matter. She could not control whether she would be right. What mattered was that she could control her decision prior to the clue being revealed. She needed to make the best decision relative to the goal of winning the game. She did not do that, leaving herself with 5,000 useless points.
Years of observing Jeopardy contestants has shown me that many don’t seem to know or don’t act as if their goal is to win the game. As with Laura, I have seen people under bet on Daily Doubles when betting properly would have given them the chance to win. I have seen leaders lose on Final Jeopardy, despite giving the correct response, because they bet too little. Oddly, these players engage in loss aversion despite the fact that Jeopardy scores only become real dollars if you win.
Investors are like Jeopardy contestants. Many don’t know their goals or, if they do, are unwilling to assume the risks necessary to reach them. Things that seem risky in the short run, like investing in stocks, may be less risky in the long run if you are trying to fund a distant retirement or college education for a newborn.
There are no easy answers. Everyone’s situation is different. Whether it’s about retirement, education, supporting dependents, leaving a legacy or something else entirely, reaching your goals, given your circumstances, is best achieved with understanding. Understanding is the first step. Defining goals is next. Developing a plan to achieve those goals and executing that plan cap the process.
Having a plan can make all the difference. James has one. Executing the plan is key too. James has been executing flawlessly. Knowing a lot of trivia is necessary, but not sufficient, to become a Jeopardy champion and sustain a championship run. Investing without a plan may be better than not investing at all, but it may not allow you to reach your goals, assuming those goals have been defined.
It doesn’t stop there. Things change. Plans must change with them. Adjustments will be necessary, hopefully good ones. This is what financial advisors do: Formulate plans, given your goals and circumstances, help you execute those plans and adjust when necessary or opportune. That’s what it’s about, not the trivia on CNBC or in the Wall Street Journal. Knowing that is interesting, but it is not enough to win the game.