Business

Investing? It’s a lot like fantasy football

My first year playing fantasy football, I started out 0-8. I consistently made the wrong lineup choices, I was forever leaving points on the bench, and even when I played my best team, the unpredictable would happen, leaving me winless and frustrated.

Last year, I was champion of our fantasy football league.

So what changed over three years? I started to treat fantasy football like my job. Literally. As a financial adviser, one of my responsibilities is to strip emotions out of the equation – not always easy given the behavioral biases that keep most people from having a successful investment experience. I realized that if I wanted to win at fantasy football, I needed to take the same disciplined approach I take to investing.

Lesson No. 1: Don’t draft with your heart

I’m a Jets fan, so in 2011, I naturally drafted Mark Sanchez as my quarterback. But after eight straight losses, I learned that whatever 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 rack up miles on a particular airline, so why not buy their stock? The simple answer: because in investing there are no rewards for loyalty.

Lesson No. 2: Boring is better

It is exhilarating when your quarterback throws for seven TDs or your running back rushes for 200+ yards, but those off-the-charts successes aren’t sustainable week to week. And often, a player whose brilliance on the field gives you the Win one week, can crash and burn the next, leaving you with a Loss. It is winning your weekly matchups that will get you into the playoffs, and so I prefer a roster of dependable players who deliver consistent results – even if they aren’t making headlines. The same strategy works in investing. Warren Buffett has said that most investors are best served by building a globally diversified portfolio of low-cost, passively managed index funds. It may sound dull, especially compared to something sexy like private equity or options. And yet, over the 10-year period ending in 2013, only 19 percent of conventional stock managers and 15 percent of conventional bond managers survived and outperformed their index benchmarks.* Bottom line: indexes might be boring, but they deliver results.

Lesson No. 3: Past performance is no guarantee of future results

Week 8 in 2013, Marvin Jones lit up the scoreboards with 122 receiving yards and four touchdowns. At the time of his headline-making performance, he was unowned in approximately 80 percent of Yahoo! Fantasy leagues, although I am sure that changed 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 zero TDs in his next four games and had a combined total of 89 receiving yards. When it comes to investing, there is a reason why all prospectuses come stamped with 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 No. 4: Control what you can

The market is going to do what the market is going to do, and no one has any control over that. So instead of wasting your energy worrying about which direction the market is headed, focus on what you can control: 1) Make sure you are appropriately allocated for your risk profile. 2) Stay well diversified. 3) Keep fees and taxes at a minimum. 4) Remain disciplined and focused on your 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.

Sarah R. Paris, AIF® is a financial adviser with Dixon Hughes Goodman Wealth Advisors, and in 2013 she was the champion of her fantasy football league. Reach Paris at sarah.paris@dhgwa.com.

* Source: Mutual Fund Landscape, Dimensional Fund Advisors 2014.

  Comments