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By: Michael Schupak, CFP®, posted on 09/12/2017

Four Ways Fantasy Football is Similar to Investing

Four Ways Fantasy Football is Similar to Investing

The league is not won on draft day and your total returns are not only driven by your initial stock picks.

 

Draft day is a great time to see your friends, catch up over beers and trash talk, but it doesn’t drive the winner of the season. Important decisions such as who to bench, waiver pickups and trades will likely drive the winner of your league. In investing, your total return will be driven by what securities you hold, but also, how long you hold them, what type of taxes you have to pay (short term, long term, ordinary income or none!), what other securities you pick up, how much you pay in trading fees, AND how and when you decide to rebalance, reinvest and withdraw.

 

There are Value players and Growth players, just like you have Value stocks and Growth stocks.

 

Value players would be ones that consistently perform well every single year, sometimes an all-star and other times not, but their production is well forecasted. Matt Forte, Tom Brady, Julio Jones and Frank Gore to name a few. Then, there are those growth players who are more volatile and likely to over or under perform. CJ Spiller of 2013 comes to mind (I picked him #4 at the time) as he was supposed to be a breakout performer and was filled with disappointment. Beckham in 2014 surpassed expectations. My growth callout this year would be Adrian Peterson as he can be a big hit or miss.

 

Waivers is like an IPO.

 

It’s frustrating in fantasy football when, in week 8, the starting running back tears his ACL and the backup is somebody with great potential. You put in a waiver claim for the promising back-up, along with everyone else in the league and only one person walks away with him. Well, many IPO’s are in such high demand they are nearly impossible to get your hands on. It’s not uncommon to see an IPO up 20% on opening day. For the person who was able to pick up that hot waiver, they likely see their team’s value increase sharply and instantaneously.

 

Diversify!

 

I’m a big fan of diversifying, whether you are buying stocks or mutual funds. I like to diversify across a number of metrics: stocks vs. bonds vs. REITS, US vs. international vs. emerging markets, small cap vs. large cap, value vs. growth and I believe the same should be said in fantasy football. Remember what happen to those who predominantly owned technology stocks during the dot-com boom? Similarly, you don’t want the running back and top two receivers from a single team, even if they are the number one ranked offense. If the QB gets hurt, the team faces the top rated defense or if the weather is poor, you’re bound to have a loss that week.  Therefore, diversify your players across different teams.