Can fantasy football make you a better investor?
- Choosing an investment portfolio is like drafting a fantasy football player.
- Just like when choosing an investment, you want to do your research and plan before drafting.
- Just as one high-performance player cannot win, you need a diverse portfolio.
I’m a big fantasy football fan. Fantasy football is a nearly $9 billion annual business, played by nearly 40 million Americans each year. Once in a league, the real-life he drafts NFL players onto his team and uses in-game stats to play against other players in the league online.
Each week, set your lineup and earn points based on your players’ actual performance. Like investing, it’s easy to get started, but much harder to master for long-term success. Many people play it for entertainment purposes, but the skills they acquire actually help them become better investors. How? Here are some principles to help you build a top-notch team and investment portfolio.
know the plan
I never go into a draft without a plan. Whether you choose a specific position to start with or a specific player regardless of position, you need a clear idea of what you want to achieve. Money and investment management are the same. You want to clearly write down your financial goals and know what you want to achieve.
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Past performance is no guarantee of future performance
Doing research is a key factor in choosing the right players and maximizing roster talent. This is the same as choosing an investment. Just because a player or investment has been successful in the past does not guarantee future success. Players may get hurt, companies may have to recall products, and stock performance may be subject to short-term fortunes.
Robert Griffin III (better known as RG3) is the winner of the 2011 Heisman Trophy and was selected second overall by Washington in the 2012 draft. He set records for his highest passer rating (102.4) and highest touchdown-to-interception ratio (4:1) by his rookie quarterback and became the NFL Rookie of the Year. However, after a severe injury he was unable to regain his former form. I was alone. So what’s the best way to avoid this problem?
Diversification is key
You can’t win with just one good player. We also don’t want players who score tons of points one week and none the next.
The best strategy is to have a reliable core player and some support players who are high risk but high reward and can do well. A good investment portfolio also has different investments playing different roles. You don’t want to put all your eggs in one basket. This way you maximize your return and minimize your risk.
Cut out the losers, let the winners run
If one of the players fails to perform consistently or is injured, that player cannot be kept in the lineup in the hope that he will recover. Find a player who can make a trade or replace him quickly. We don’t put players who are doing well on the bench. Loosen them to earn points.
Your investment is the same. It is not uncommon for investors to hold loss-making stocks in hopes of an upturn. You want to cut your losses to move on and not oversell winners too quickly.
Check your feelings at the door
I have been a huge 49ers fan since I was young and have a huge emotional attachment to them. I tend to overestimate his 49ers players and expect them to do well, only to be disappointed. Much like picking stocks, you’ll want to look at players based on perceived value rather than emotional value.
Also, watching too much fantasy football ups and downs drives you crazy. The same is true for investments. Just because Tom Brady has had a bad week doesn’t mean you need to throw him out because he’s been good for a long time — win an entire season, not just one game. It’s the same with investing. See the big picture.
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