A dozen years ago, a 75-year old man made a bet. A bet that could have easily outlived him, given the terms he was seeking.
In May of 2006, Warren Buffett, the Oracle of Omaha, stepped in front of a crowd of over 20,000 investors to tell them that any of them betting on hedge funds over the long haul were being taken for a ride. According to Buffet, the high-risk, high-stakes world of hedge funds did make a ton of profits, but primarily for the hedge fund managers who oversaw the funds. Buffett famously told the crowd that sticking your money into a boring old S&P index fund would beat the hedge fund guys hands down. And he was willing to put a half a million dollars of his own money on the line for a decade to prove it.
With Buffett’s reputation, it was a while before anyone took him up on the bet, but 14 months later, a hedge fund management group took him up on the wager. To keep things legal, they donated the winner’s outcome to a charity of their choice. The bet kicked off in early 2008. Anything else memorable happen in 2008? Only one of the largest financial meltdowns in U.S. history.
And with that meltdown, Buffett’s bet came out of the gates poorly. By the end of the year, he was already behind the hedge fund by 13%. The Oracle kept on his game face and reminded everyone of Aesop’s tortoise and the hare. After all, he had nine-plus years to try and make back that ground.
Your Denver Nuggets just laid a similar set of chips on the table. A week ago, Tim Connelly and the Nuggets front office stepped away from what sounded like a plan to shed some salary by trading away draft picks, and took a shot at Michael Porter, Jr., a talent who when healthy, may be the best in the draft. Porter checked all of the boxes the Nuggets needed coming into the draft:
Small forward? Check. Yet not so small, as he’s an inch and quarter shy of seven feet tall.
Floor stretcher? Check. Porter has a beautiful touch from under the hoop to beyond the arc.
Scorer? Check. Porter can create for himself, and still has the passing game to score and share a ton in Denver’s beautiful take-the-best-shot offense.
Defender? Quite probably a check. Porter’s defense is still a work in progress, but with a seven-foot wingspan, and a nine-foot standing reach, he’s already a hurdle to cross for anyone on the other side of him from the hoop.
Attitude? Check. Porter has the confidence of a kid who has routinely been the best player on the floor throughout his life, and the competitive streak to want to play against the very best and win. He also looks to have the humility and candor of someone who doesn’t take his blessings for granted, after his injury. Oh, about that…
Injury? Check. Damnit. Not a box Denver was hoping to check, but the sole reason Porter was available at 14, anyway. No news to you – if you’ve tuned into most of the dozens of kick-ass articles that Denver Stiffs has cranked out in the last week – that Porter is a mystery box at this point. At his best, he’s a franchise-altering player stepping onto a team that already has some impressive young talent to match, including the unicorn that is Nikola Jokic. At Porter’s worst, he’s holding down a bench seat, making like late-model Larry Bird before he even hits adulthood. So, a bit of a conundrum. A risky bet, but one that can be nudged in the right direction.
The best way to see that bet come to positive fruition? Time. Something the Denver Nuggets organization has asked of their fanbase a number of times, including over the past half-decade. As much as the Nuggets faithful wants to see their outside-looking-in squad find their way back to the playoffs, the bet that got them there the fastest was probably not adding more youth and talent to a squad so close to taking their next step.
About that half decade… Patience was preached after George Karl’s firing. Patience for the new coach. Patience with the new players. Patience with the new system, and then the other new coach, and the other new players, and the other new system, and another. Five years later, it is admittedly tough to swallow another request for time, but that is exactly what this Denver Nuggets team needs, as a long-term picture coalesces. Those seeking quick solutions would understandably like to see the trade(s) of somewhat expensive contracts (read: veteran forwards) not very many other teams seem to want. Absent the option of shedding those salaries only, many seem ready to part with a lot of youth or even one of the Core Four to get a player of immediate stature in the door. (four being Nikola Jokic, Gary Harris, Jamal Murray, and assuming Porter in this argument)
But what if the right solution is the boring, costly one, in terms of both dollars and days? The Nuggets have already done the most sane thing they could in this offseason by declining Nikola Jokic’s team option year and working on signing him to a max deal to lock him up for the long term. That obviously starts the clock on a more-expensive contract for Jokic this year right as the Nuggets hit the costs of several deals coming back around. Veteran forwards Wilson Chandler and Darrell Arthur wisely took advantage of their player option years, and suddenly Denver finds itself trying to find room to sign all of the players they they’d like to, worrying about the high costs of the players who may not see a ton of floor time. If the Nuggets are able to get one of the Chandler/Arthur/Kenneth Faried contracts shipped off to another team, odds are good it will come at the cost of at least one of the high-potential youngsters who do not make up that Core Four. A price many think worth paying, but sad to see the potential go with so many of those veteran contracts near fruition.
And that’s the rub. Chandler, Faried, and Arthur all come off of the books after this next season. Just those three players comprise a little north of 34 million of this next season’s cap. And though that’s a lot of cheddar for where those three project for next season’s plans, Chandler could be a valuable bridge between today and a healthier Porter, and should be playing his guts out as he works for his next contract. Faried has repeatedly shown his worth to the Nuggets, brings a ton of energy to the floor, and plays exceptionally with Jokic if a need should arise. He simply finds himself the odd man out in the current lineup. Arthur brings what’s left of his knees, and value as a veteran voice for a very young squad. The salaries of those three players salaries make it tough for Denver to swallow the pill that they’d far prefer to take, in re-signing Will Barton. The Thrill regularly finds himself in the top-tier of sixth-man conversations, and has proven to be a difference-maker for these Nuggets. He could be even more effective next season, if Denver were able to get him back into spots where he’s most comfortable and excels, forgoing the lumps and bumps of playing positions one through three last season, sometimes on the same night. Such a step might even mitigate things for Barton’s biggest detractors.
What if the smartest wager for the long haul is to go in the hole? As averse as the Denver Nuggets and Kroenke Sports often shown themselves to be in paying unneccessary luxury tax, is the smart bet this time one similar to Buffett’s? Where you come out of the gates with a tough pill to swallow, but with a long-term goal in mind. Is the smart play to sign Barton, do your best to offload desired salaries as you can by the trade deadline, and take whatever cap/tax hit comes this next season for what you cannot. In that case, maybe you find yourself on the far side of this season with the guys you want to be playing at the cost you want to be paying. As ugly as it sounds for 2018-19, it certainly has it’s appeal on the far horizon, just like that smart elderly gent in Omaha.
Oh, and about Buffett’s bet. He had a strong feeling he was staring into the teeth of a housing bubble about to burst, and said as much at that same conference where he welcomed a wager. Knowing that the horse he was about to bet on would be directly tied to the steep curve that followed, Buffett made his bet anyway. He bet on what he’d seen in the data historically, understanding that the nature of his wager gave him time to right the course back to the norm. He wasn’t quite halfway into the decade-long bet when his fund overtook the hedge fund’s best effort. It was a lead he would never relinquish. Though the bet didn’t officially ended four months ago, the hedge fund called for mercy a year prior, acknowledging the bet was lost. When all was said and done, Buffett’s outlay had earned him an average of 7.7% return, where the hedge fund realized less than a third of that (2.2%) after all of the fees associated. The safe and boring bet ended up being the right one over the long haul. Buffett’s S&P bet outperformed even his own expectations to a point that he was able to give his charity, Girls Inc. of Omaha over double what he’d expected to, in excess of 2.2 million dollars.
Could our long bet prove so profitable? What’s the right way forward, Nuggets Nation? Assuming the Nuggets cannot shed only the salary they want, is it worth taking the hit in the short term to keep everything you want long-term, or is it worth sweetening the pot to others to get the relief we need now?
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