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Investing? It’s a Lot Like Fantasy Football

posted on

September 09, 2014

My first year playing fantasy football, I started the season 0-8. I seemed to consistently make the wrong line-up choices, I was always leaving points on the bench, and even when I had the best team possible, something unpredictable would happen (like Baltimore’s defense scoring 28 fantasy points), once again leaving me winless. The frustration was maddening. 
Last year I was champion of our fantasy football league.
So what changed over 3 years? I started to treat fantasy football like my job. Literally. As a financial advisor one of my responsibilities is to strip emotion out of the equation – and let me tell you, it’s not easy because human beings tend to fall prey to a number of behavioral biases and pitfalls that keep them from having a successful investment experience. I realized that if I wanted to be successful at fantasy football, I needed to take the same disciplined approach I take when it comes to investing. 

Lesson #1: Don’t Draft with Your Heart 

In 2011 I drafted Mark Sanchez as my quarterback. As a Jets fan, how could I not? But with my dismal 0-8 start, I learned the hard way that any team allegiance I had in real life, was irrelevant in fantasy. In investing, we call it the Loyalty Bias. You shop at a particular retailer, or you have racked up 75,000 frequent flyer miles on a particular airline and so you believe that you should buy their stock as well. The thing is, there is no loyalty in investing and there is no guaranteed reward for being a faithful customer. 

Lesson #2: Boring is Better

It is exhilarating when a quarterback throws for 7 TDs or a running back rushes for 200+ yards but those off-the-charts successes are not sustainable week to week. And often, a player who gives you significantly higher than expected points one week – allowing you to CRUSH your opponent, may fall short the next, causing you to lose your weekly match up. Ultimately, it’s winning on a weekly basis that will get you into the play offs, and so I prefer a roster of dependable players that deliver consistent results – even if they aren’t making headlines on Monday mornings. This boring is better approach applies to investing as well. Warren Buffet has said that most investors are best served by building a globally diversified portfolio of low-cost, passively managed index funds – hardly a glamorous approach. What about something sexy – like private equity or foreign currency swaps? Surely the Oracle of Omaha has more thrilling investment advice than index funds!? And yet, over the 10-year period ending in 2013, only 19% of conventional stock managers and 15% of conventional bond managers survived and outperformed their index benchmarks.* Indexes might not be glamorous but they deliver results. 

Lesson #3: Past Performance is No Guarantee of Future Results. 

Remember Week 8 last year when Marvin Jones of the Bengals lit up the scoreboards with 122 receiving yards and 4 touchdown receptions? At the time of his headline-worthy performance, he was unowned in ~80% of Yahoo! Fantasy leagues, although that changed with fantasy owners snapping him up off the waivers in Week 9. Trying to determine if a player’s recent fantasy success is an indicator that they are emerging as a star player or if it’s a fluke isn’t always easy. In the case of Marvin Jones he went on to score 0 TDs in his next 4 games and had a combined total of 89 receiving yards. When it comes to investing, there is a reason why all prospectuses come stamped in a big, bold letters: Past Performance is No Guarantee of Future Results. Just because a manager was successful one year, it does not mean they will be able to repeat that success. And it is near impossible to be successful, consistently, for a sustainable period of time.

Lesson #4 Control What You Can

The market is going to do what the market is going to do, and as a financial advisor, I have no control over that. So instead of wasting my energy worrying about whether the market is going to go up or down, I focus on what I CAN control:

  1. Making sure my clients are appropriately allocated for their risk profile;
  2. Making sure my clients are well diversified;
  3. Keeping fees and taxes at a minimum
  4. Keeping clients disciplined and focused on their long term goals.

So it goes in fantasy football. Player injuries, fluke fumbles, and idiosyncratic coaching decisions are impossible to predict. But you use the available information to build the best possible team and go for the win. 

* Source: Mutual Fund Landscape, Dimensional Fund Advisors 2014. Mutual fund data is from the CRSP Mutual Fund Database, provided by the Center for Research in Security Prices, University of Chicago. Funds are identified using Lipper fund classification codes and are matched to their respective benchmarks at the beginning of the sample periods.