I am a big fan of fantasy football. Fantasy football is a $1 billion-plus annual business with almost 60 million Americans playing every year! After you join a league, you draft real NFL players for your team to compete online against the other folks in your league.
Each week you pick your line-up and score fantasy points based on the actual performance of the players. Just like investing, getting started is easy, but long-term success is much more difficult to master! Although many people play for the entertainment value, the skills you learn actually can help you become a better investor. How? Here are principles that can help you build a top-notch team and an investment portfolio!
- Past Performance Doesn’t Guarantee Future Performance! Studying and scouting players is an important component of picking the right players and maximizing the talent on your roster. This is the same as picking an investment. Just because however the player or investment did well in the past doesn’t guarantee future success. A player can get injured, a company may have to recall products, or the performance was a short-term stroke of luck. In 2007 Tom Brady threw for 4,806 yards and 50 touchdowns. In the season opener of 2008 Brady was injured, ending his season. No other player in history was so highly valued going into drafts and ultimately produced so little for owners. So what is the best way to hedge against this problem?
- Diversification is key! A great fantasy football team has different players playing in different positions. There are 1,600 players on 32 teams to choose from in 5 main positions: quarterback, running back, wide receiver, tight end, and defense/special teams. You don’t want to pick players all from one or two positions. You also want to choose players that produce consistent points every week. You don’t want players who score a bunch of points one week and nothing the next. The best strategy is to have core players that are dependable and a few supporting players that are high risk but high reward that have the potential to do well. A great investment portfolio also has different investments playing different roles. You want to be invested in different industries and sectors so all your eggs are not in one basket. This way you maximize your returns and minimize your risks.
- Check your emotions at the door! I have been a big 49ers fan since I was young and have a big emotional attachment to them. The first game of the 2015 season the 49ers did extremely well against Adrian Peterson and the Minnesota Vikings allowing only 3 points. I immediately picked the team up praying they could continue this run. This was my team! The following week they allowed 43 points and ended up with negative points that week. Just like picking a stock, we want to look at players at their match-ups, review their projections, and do our homework based on their perceived value, not emotional value. Also watching the ups and downs of too much fantasy football can drive you crazy, the same goes for investing as well. Just because Peyton Manning has a bad week doesn’t mean to dump him since he has been good for so long. It is about winning the entire season, not one game. Investing is the same, look at the big picture!