What Fantasy Football Can Teach You About Investing

Putting together a well-diversified portfolio is like building a great fantasy football team.

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Fantasy football is a billion dollar business that has more to do with investing than you might think. The thought process involved with picking and managing your fantasy football team can be similar to investing in your 401(k).

Fantasy football players pick athletes who they believe will outperform other athletes throughout the season. However, any one player does not make or break the game. Instead, it is a team effort, much like a diversified investment portfolio. Fantasy football players learn to diversify and invest in consistent performers who play well over the entire season, instead of the “hot player” (or stock) that everyone is fighting over. This strategy is akin to value investing, made famous by Benjamin Graham and Warren Buffett, which is selecting companies (or fantasy players) the market does not appreciate in the hope that over the investing time frame (season), that company stock (player) will outperform expectations and help you beat relative benchmarks (win the game). This strategy is very helpful when selecting available players from the waiver wire, where the goal is to find a player at a good price, that is not an obvious “stud” at face value.

Another correlation between fantasy football and investing is that if you watch the ups and downs too closely, it will drive you crazy and you will make an emotional decision. If you have a great athlete who has been doing well for most of the season, but has played a bad game or two, you wouldn’t bench him, just as you might not sell a historically good stock just because it has had a bad quarter or earnings report.

Putting together a well-diversified portfolio is like building a great fantasy football team. You need to be prudent with your picks and create a well-balanced team that works well together. Some days your running back will get the most points for you, and other days it will be your quarterback. If you’re playing to win, you will want to diversify, so that on any given weekend, your average returns will be positive (points), even though you’re bound to have some underperforming players.

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