Investment Lessons from Fantasy Football
As the calendar turns to September and temperatures begin to cool (or not!), our attention naturally turns to…football. Fantasy football has become an integral part of the football season.
For those unfamiliar, fantasy football involves drafting a lineup of players from any team to create your own “fantasy” roster. Your players earn points based on their individual performance, for example, 1 point for every ten yards of rushing. The team with the highest point total after all the players have played each week wins.
At first glance, fantasy football is almost the opposite of investing. One is a game built around weekly matchups and short-term resultInvestment Lessons from Fantasy Football
As the calendar turns to September and temperatures begin to cool (or not!), our attention naturally turns to…football. Fantasy football has become an integral part of the football season.
For those unfamiliar, fantasy football involves drafting a lineup of players from any team to create your own “fantasy” roster. Your players earn points based on their individual performance, for example, 1 point for every ten yards of rushing. The team with the highest point total after all the players have played each week wins.
At first glance, fantasy football is almost the opposite of investing. One is a game built around weekly matchups and short-term results; the other is a disciplined long-term approach to building wealth over decades. But fantasy football offers lessons for how investors can make better decisions, and perhaps more importantly, how they can avoid making bad ones.
Don’t confuse activity with performance. Fantasy managers are constantly tempted to adjust their lineups. Yet making changes doesn’t necessarily produce a better result. Investing works the same way. Trading frequently can create the illusion of being engaged and productive but often the best investment decision is to do nothing.
Think long term. A fantasy manager who panics because a player has one bad game can easily make a poor decision. A good manager understands that one week represents only a small sample of a player’s expected performance. Investors face the same temptation when an asset performs poorly. Disappointing short-term performance doesn’t necessarily invalidate a long-term investment thesis. Good investors distinguish between market noise and a genuine change in fundamentals.
Know what you don’t know. Fantasy football encourages people to believe they can predict which players will dominate. Sometimes they’re right. Often, they’re not. Investing comes with even more uncertainty. Professional investors with enormous resources routinely get forecasts wrong. Recognizing the limits of one’s own predictive ability is a valuable investment skill.
Don’t chase results. One of the most common fantasy mistakes is picking up a player after he has an unusually good game, assuming that performance will continue. Investors do essentially the same thing when they buy an investment because it has performed well. If buying what has recently performed well worked as an investment approach, no one would need an investment advisor.
Finally, understand the difference between a good decision and a good outcome. A fantasy manager can make the right lineup decision and still lose because of an unexpected performance. Likewise, an investor can make a sound investment and experience a disappointing result. The quality of a decision should be judged by the process and the information available when the decision was made, not simply by what happened afterward.
Fantasy football is ultimately a game of probabilities, uncertainty, and imperfect information. So is investing. Successful fantasy managers build strong teams, manage risk, and make reasoned and unemotional decisions based on probabilities. Investors would do well to do the same.
Jeff Buck