It was the early 2000’s when Fantasy Football became a “thing.” Yahoo!, ESPN, and CBS Sports were all competing to create the best online football reality game and a group of college friends asked me if I wanted to play. It sounded fun, so why not give it a shot?
For those of you that aren’t familiar with the game, allow me to outline the rules so this article and all the analogies make sense. At the beginning of the season, your group of friends determine the total number of players all teams are allowed. You might have a team consisting of two Quarterbacks, three Running Backs, five Receivers or Tight Ends, a couple Kickers, and a couple Defensive Teams (or in our league, we used to have the ability to pick defensive players as opposed to being limited to entire teams).
Then there is a “draft,” where you and everyone else on your team get together in a room – or virtually online – and each person gets a chance to pick your favorite player (ideally, the one who will run the most yards, catch the most passes, or score the most touchdowns throughout the NFL season). When each “round” of picks is finished, you start at the top again and everyone gets another shot at whoever is left until all the slots on your team are filled.
Once the draft is finished, the season starts and it’s up to you to pick which players “sit or start” before the NFL games begin each week. Every week, your team “plays” another friend’s team in your league. The players on each of your teams score points for yards gained, passes thrown, interceptions, tackles, field goals, and touchdowns scored, among other things. The points for both teams are tallied up when all the games end (typically on Monday night) and if you had more points than the team you’re playing, you win that week’s matchup.
Sometimes, when you start your season with a good team, your players don’t perform up to par. Some flake out, others get injured, and you’re forced to start a different, lesser-scoring player on your “bench.” Sometimes, Murphy’s Law takes effect and nothing seems to go right. You find that even your bench players aren’t scoring enough points to compete with your friends each week.
If you think back to the “draft” above, there are a ton of players who, after the draft, no one wanted (think of the people who got picked last on the playground). Those players are called “Free Agents” and anyone can pick those players up throughout the season in exchange for one of the players on your team (making these adjustments is called making “moves”). While it’s not always easy, if you’re paying attention, you can find players with emerging talent and scoring power while no one else is watching. Doing so helps you adapt to changes that occur, giving you the ability to improve your team with new players as the season moves along.
Alright… now that you understand the game, let’s talk about how it can make you a better investor.
Just like fantasy football, when we invest our money, we chose which investments we want in our portfolio, kinda like the draft. However, unlike fantasy football, we get to pick any investment we want, even if our friends (or people we don’t know) already own it. For instance, if Technology is the Peyton Manning sub-sector of the stock market, anyone… everyone can buy it.
Then, as the weeks and months go on in the market, you have the ability to “sit or start” any investment you choose. You obviously want the investments with the most momentum and strength on your team (maybe healthcare or cyclicals?) – and you certainly want to avoid the injured investments, as well as those that have been suspended for any reason (perhaps oil or gold could be analogous here?).
Maybe nothing in your portfolio looks good and you keep “losing games” week after week. Just like fantasy football, you have the ability to go out into the market, re-evaluate who’s on your team and who’s available to pick up, and you can make any moves/trades you want in order to beef up your team with investments that are emerging in strength and scoring potential.
My first year of Fantasy Football was in 2002. It was so new and exciting at the time, my wife, Donna, decided she wanted to play as well. I didn’t have the best players on my team, but thanks to my extremist personality and unrelenting obsessiveness, I became addicted to researching player and team statistics each week, making moves to pick up players that were free agents, attempting to improve my team, in hope of winning my matchup each week.
At the conclusion of that first season, I won the championship with my team after making 49 moves/trades throughout the season. This is compared to the 3rd place team, who made 24% fewer adjustments throughout the season than I did. What about 2nd place, you ask? Well, my wife, Donna, actually got sick of playing halfway through the season and asked me to take over her team as well. “Coaching” Donna’s team, I ended up making one more move/trade than I did for my own team, and she ended up finishing in 2nd place. Go figure…
I won the fantasy football championship the only four years I played (2002, 2003, 2004, and 2005). I didn’t start with the best players each year, but I made more moves/trades than any other team in the league, each and every season.
I used to painstakingly research and drill down into ridiculous detail. If I could start four defensive players, I’d find out who Peyton Manning (and the Colts at the time) were playing, and I’d pick the cornerbacks and safeties in the secondary that week as free agents because I knew that anyone who made a tackle, interception, or picked up a fumble was going to be in the defensive secondary since Peyton was surely going to light up whatever team he was playing that week.
The other players in our league used to get upset that I’d make so many moves/trades throughout the season, but isn’t that a lot like paying attention to your investment portfolio in this kind of market? It’s the people paying attention that likely come out on top in the end. No one’s “cheating” by closely observing their “investment team” and making changes as needed throughout the year. Of course, after four years of this stuff, my lovely bride started to get a little annoyed with the amount of time I spent on NFL.com.
In no way am I advocating any sort of “day trading” in investment accounts. I think that there is a point at which one can partake in too many transactions in their investment account, to the point where it’s detrimental to performance. However, there are entirely too many investors who use a “set it and forget it approach.”
Imagine picking your fantasy football players at the beginning of the year and never making a change, never benching any of them, and never placing any trades. How well do you think your team is going go perform throughout the year using this type of approach? This is a lot like investing your money in a bunch of “diversified” investments and turning your back on your portfolio.
I know some are going to think, “But I own mutual funds and they’re making changes all the time.” Sure, you own mutual funds that are invested in Large Cap Stocks, but what if the Large Cap style category is weak and fatigued? That mutual fund manager is only allowed to buy more stocks in a category that is weak and fatigued. What if you own a biotechnology mutual fund at a time (like now) when biotech has broken its leg? Don’t you think you should adjust your “team,” accordingly? It doesn’t mean you can’t invest in that player again later when he’s back to feeling healthy again – but why keep an investment on your team if it’s trend is to the downside?
The only way you can succeed in retirement using a “set it and forget it” approach is if you have so much money that you can afford to ride out the crashes that the market hands you. Remember, there’s nothing wrong with being wrong, you just can’t stay wrong. Just as in the case of fantasy football, if you implement a strategy that largely ignores the ever-changing economic and market landscape, you might not end up happy with where you rank vs. your peers and you likely won’t win any championships as you watch the years (and “seasons”) go by.
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Disclosures: All index returns are rounded to the nearest tenth percent. All data above sourced via Yahoo! Finance. The proxy used for international investments is the ACWX (all country world index ex-US). The proxy used for commodities is the DBC (PowerShares commodities index). Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
The opinions mentioned in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Past performance is not guarantee of future results. Economic forecasts set forth may not develop as predicted. The views and opinions expressed in this commentary are those of Adam Koos and do not necessarily represent the views of TD Ameritrade and its affiliates. Investing involves risk including loss of principal.Categories: Adam Koos, CFP®, CMT®, Market Commentary