Like so many other people in America I get excited about football season. Part of it is just my eternally optimistic hope that the Bears will be competitive and make a run deep into the playoffs. Second to that though is the chance for fantasy football domination. I have to admit that my performance the last couple of years has a little lacking, but this year is my year.
One of the things I like so much about fantasy football is how closely it relates to investing. In fact, people that consider themselves fantasy football experts could learn a lot about investing using the same principles. So here are a few things that fantasy football can teach you about investing.
Winning Depends on Finding Value
The key to fantasy football is to find players that will provide your team with the highest return. More than that though, it’s about getting players at a good value. If you can draft a guy in the third round that will provide you the same return as guys normally drafted in the second round, then you have a big advantage.
Stocks are the same way. You are basically looking to buy a $5 stock for $4. And just like in fantasy football, you could spend $4 to pick up a stock for you think is for sure worth $5 and it could deliver only $3 performance. What separates the average (or bad) performers from the good ones is just that they find a couple more $5 stocks (players) than $3 ones.
And just like in fantasy sports, stock market investors have all kinds of statistics they can use to inform their decision. Instead of passing yards, touchdowns, receptions on grass fields v. receptions on turf, you have price-to-earnings ratio, dividend yield, expected growth, and debt-to-equity ratios. Of course, sometimes you need to know when the statistics don’t tell the whole story.
Like most fantasy football leagues out there, ours has that one guy who is a perennial contender and everyone is trying to beat. So I actually just sent him a text and asked
“Trying to be somewhat serious, what do you think has led to your success in fantasy football?”
I thought for sure this would be a perfect set-up for some totally smart-ass, sarcastic comeback. So I was surprised when he responded with:
“Listen to a lot of podcasts, hawk the waiver wire, and constantly keep guys on the watch list.”
If you Google “how to win at fantasy football’ you will for sure get some version of this same thing. There is no secret formula. Just like there is no secret formula to investing in stocks. Anyone who says they have one, (and there are lots of them out there) are total frauds. Sure there are some good rules of thumb to live by, but, it comes down to doing the homework. I get a ton of flak from the professional investment people out there for quoting Jim Cramer, but this is a line that he repeats every week “Do the homework.” Being a good investor requires spending more time than most people think is sane on reading research, listening to conference calls, and following the news. The same thing applies to Fantasy sports. The reason this friend is a perennial contender is that, like a good stock investor, he just spends an inappropriate amount of time obsessing over it.
Strategy Can Only Take You So Far.
From the Scottish poet Robert Burns “The best laid plans of mice and men, oft’ go awry” Sometimes you have to adapt to circumstances.
You may think that you drafted a fantasy football stud – someone that is a lock to score a ton of points week after week – and then, he gets hurt. You also may buy a stock that you think is a sure thing to provide great returns, and then management gets involved in an accounting scandal. You should not only be aware that surprises can happen, but you should plan for them. You need to build a team, (and an investment portfolio) that can weather whatever gets thrown your way.
Sometimes the Noobs Just Get Lucky
The most important lesson to carry over from fantasy sports into the world of investing is that the best fantasy player does not win every week. Sometimes the best fantasy player can lose to the worst fantasy player. And in investing, you will always have some buffoon telling you about how he made a killing on some “can’t lose” investment. The key with both is persistence and consistency… along with the realization that neither is fool-proof. You will get a lot of losses both in fantasy football and in investing, but you can’t pay as much attention to each end result, as you do the process.
Remember, sometimes noobs get lucky, and (to intermingle my metaphors here) no one bats 1.000.
So as the season kicks off, remember that if you want to be good at investing, you have to spend at least as much time working on your stock picks as you do your fantasy football picks. You have to understand what you are doing, and prepare to be wrong on occasion. You have to be prepared to have a losing season, and still trust your process. If these are things you cannot commit to, then either hire a professional (but just watch out for frauds…as explained here) or get a few index funds and ride the averages. The biggest difference between investing and fantasy sports is that if you just remain average, you can actually do really well. It’s the people that aim for the best performance and then blow themselves up that are real losers. It doesn’t matter what you earned in year one, two, or three, if you lose 100% in year four, your total is still zero!
Good luck on your fantasy football teams out there, and good luck on your investments.
Until next time….
“Concentrate on what will produce results rather than on the results, the process rather than the prize.” – Bill Walsh
Photo Credit: Jake Roth, USA TODAY Sports