What fantasy football can teach us about investing
No single player wins you a championship
A recent report by American Express shows nearly 75 million people will play Fantasy Football this year. Yes, you read that right: 75 million, with a capital M. That is nearly 50 percent more people than the 52 million active 401(k) participants in the U.S.
It is not a stretch to say that most of those people will spend more time and thought on their team than they do on their 401(k). A 2014 survey by Schwab indicates over 30 percent of Americans spent less than an hour on making 401(k) choices, with the average participant spending 2.1 hours. Two hours is about the length of an average Fantasy Football Draft, let alone managing a team for a season. That really got me thinking.
I have been an amateur Fantasy Football player for around 10 years and have often felt an overlap with my chosen profession of investment management. Matthew Berry at EPSN, one of the most well-known Fantasy Football analysts, advises that “at a fundamental level, Fantasy Football is all about minimizing risk and giving yourself the best odds to win on a weekly basis. That's it. That simple.”
In portfolio management, this concept is exactly the same. While the timeframe is different, the goal is to minimize risks and give yourself the best odds of success. And much like the investing world, there is an abundance of information, experts, strategies, and subscription services offering you the “next great idea” (for a fee of course). It is challenging to find value in the noise.
Maybe we can take all we’ve learned from the hours spent building our Fantasy Football teams and put it to good use as we try to turn our retirement goals from fantasy to reality.
Structure of a team
You can think of building your team much like you would build a portfolio. Your lineup is like your asset allocation.
A key difference is that each individual’s investment goals are unique. In Fantasy Football, of course, the goal is winning the championship and earning the right to mock your fellow league members. Therefore, different "investors" will have different lineups. But the basic concepts are the same. How much offense (think equities), how much defense (think fixed income) and how much special teams (think alternatives) should be included in your portfolio to meet your objectives?
At the end of the day, no single player will win you a championship. It comes down to the complete team. How the pieces perform individually matters, but how they interact is just as critical. If one of your players has a terrible week, do others pick up the slack?
In investing, there is just as much uncertainty about the future as there is in how well a player will perform from week to week or which player will get hurt on the second play of the game. Therefore, the only prudent thing to do is create a well-rounded and diversified team/portfolio that gives you the highest probability of success.
Luck versus Skill
As in Fantasy Football, there will always be an element of luck present in investing. No matter how much analysis and thought goes into a decision, luck does affect the outcomes. Your strategy may be solid, but something like an unforeseen injury can make or break a season.
I had the fourth pick in my draft this year. I wavered between Adrian Peterson and Todd Gurley, ultimately choosing Gurley on nothing more than a gut feeling. And then a few weeks in to the season, Adrian Peterson suffered a season ending knee injury. My season would have been shot had I picked “AP.” I wish I could say that this was skilled foresight, but it wasn’t. I happened to make a gut call that worked, but that alone should not be enough for you to hire me for fantasy football advice.
The same is true in investing. A successful performance track record for an investment manager may reflect nothing more than making a few lucky picks. The challenge that faces investors is separating skill from luck, which can be very hard to do.
For those of you who have invested your time (and perhaps some money) into Fantasy Football, don’t feel too guilty if your team has indeed received more attention than your portfolio. There are some important parallels between the two that may increase your odds in either endeavor. I wish you success in both.
As long as you’re not playing me this week.
Patrick Krulik is the Chief Investment Officer at First Ascent Asset Management, a Denver-based financial services firm.