What Fantasy Football Can Teach Us About Investing

December 14, 2011

I fielded my first fantasy football team back in the late 90’s, and what I enjoyed most about it was that it gave me an excuse to watch games I would otherwise care less about.  (I mean after all, unless you live in St. Louis or Cleveland, why would anyone have a reason to watch a Rams versus Browns football game?)  This year I decided to introduce fantasy football to the staff at Financial Finesse.  Those of us that had played before had to convince some of the “rookies” that experience wasn’t necessary (hey, every league needs a patsy) and that they would have fun regardless of the outcome.  The truth is, it has been fun, but more important than the bragging rights are the lessons it can teach us about investing.

Do your research

Danielle was new to fantasy football this year, and as a big fan of the Indianapolis Colts she named her team the Blue Ponies.  You can imagine how excited she was to draft Peyton Manning in the first round, but had Danielle done a little research, she would have known that Manning elected to have surgery prior to the start of the season that meant he would not play a single down.

When choosing an investment, it is important to do a little research.  If it is a mutual fund, learn about the fund manager.  If you are planning to invest in stock, research the company so that you know what products and innovations they are working on, what he current management structure is, and what the industry experts have to say about the company.

Don’t chase performance

In his rookie year, Cam Newton started strong out of the gates.  Within the first four games, he set a rookie record for passing yards and was on pace to set the single-season record as well.  In an attempt to capitalize on his performance, Mike (manager of the Isotopes) picked him up as a free agent.  Cam continued to do well throughout the season, but as other teams got a chance to watch him play, they were able to slow him down.

It is tempting to want to invest in stocks or mutual funds that have performed well in the past, but there is a reason every investment advertisement includes the phrase “past performance is no guarantee of future returns.”  It is not uncommon for certain investments to perform well at certain times under certain circumstances, but these times and circumstances are hard to predict.  A better alternative might be choosing investments with consistent performance over long periods of time.

Review your lineup

The season started off well enough, but after several weeks it became apparent who was paying attention and who wasn’t (Michelle, your Lightning Bolts called—they’re missing a few players this week).  Whether it was player injuries or simply a bye week, good managers would review their lineup each week and make changes as needed.  Those that didn’t, usually ended up on the short end of the stick.

Good investors regularly review their portfolio to see if changes are needed.  Sometimes portfolio managers change.  Sometimes an investment has reached its potential.  Maybe your portfolio is out of balance and needs to be rebalanced.  I’m not suggesting looking at your investments each week, but maybe an annual review will help you see what changes, if any, are needed.

Ignore the hype

At the beginning of the season some were calling the Philadelphia Eagles the “Dream Team”—ESPN analyst Chris Berman even picked them to go to the super bowl—but a couple of key injuries, including one to star quarterback Michael Vick, will have this year’s team (and Linda’s Philly Fillies) watching the playoffs from home.

Financial advisors and professionals will always have an opinion about the next BIG investment opportunity, but only time will tell if they are right.  It’s okay to speculate, but if you do, make sure it is with money you can afford to lose.  Anyone that bet on the Eagles to win it all have little to cheer for this postseason.

Fantasy football is more than just a bunch of men sitting around on their couches on a Sunday trying to relive their glory days through the athletes on the screen—women play too.  It may seem pointless, but there is value in the nuances of the game.  The goal of fantasy football is to win your league by having the best record; the goal of investing is to maximize your performance at whatever level of risk you are comfortable taking.  Even if you’re a rookie when it comes to investing, if you do your research, don’t chase performance, check your lineup, and ignore the hype, you can still invest like a pro.