Investing Is Like Fantasy Football: Here's How to Win at Both
The NFL season kicks off on today, with the New Orleans Saints traveling to play the Green Bay Packers, the 2011 Super Bowl champions.
It won't just be Saints and Packers -- or even diehard football -- fans tuning in. Fantasy football has turned us into rooters for hodgepodge collections of skilled position players across several different teams.
There are now tens of millions of players of fantasy football, hoping that dissecting the latest details on Peyton Manning's neck or the quarterback situation in Jacksonville will give them an edge over other friends in their leagues.
Sounds a lot like investing, doesn't it?
4 Rules for Winning -- in the Market and on the Faux Football Field
I'm not suggesting that Warren Buffett and Peter Lynch are masters of pigskin pretending, but there are certain rules to winning in fantasy football that also apply to generating market-thumping returns.
Pay attention -- no matter which of these two games you happen to be playing.
1. Don't show up clueless
There's always a guy in every draft that shows up completely unprepared. He has no idea that David Garrard was just released by the Jaguars or that Tim Hightower -- a disappointment in his years at Arizona -- has been tearing it up this preseason in Washington.
This guy is toast in your league. He may get lucky with a draft pick or two. He may smarten up a few weeks in and make some timely waiver wire acquisitions. But nothing beats someone who is ready on the day of the draft.
The same thing can be said about investing. It's the shareholder willing to dive deep into researching a potential purchase that has an advantage over the casual investor, who buys in just because a charismatic analyst on CNBC was pounding the table.
2. Pick a backup just in case your star pick gets pounded
Injuries are part of the game, especially at the running back position. Those guys take a pounding, so it's usually a good plan to have a star player's backup on your roster as insurance. You'll see a lot of folks who drafted the injury-prone Maurice Jones Drew picking up the otherwise-unknown Deji Karim in the final round of the draft to be covered.
Investors can do the same thing, too. If you're not comfortable with Netflix's (NFLX) new pricing strategy as a shareholder, why not also buy into the Deji Karim equivalent of Redbox parent Coinstar (CSTR)? It should fare well if Netflix's price hike pulls up lame this month.
3. Sometimes it's worth it to pay a premium price
What do Adrian Peterson, Arian Foster, and Chris Johnson have in common? These were likely the first three players -- in no particular order -- drafted in your league. They're all running backs. It's not unusual for the vast majority of a league's first round to be earmarked for running backs.
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Why? Quarterbacks are likely to put up more points in a league's scoring system. Wide receivers also put up some pretty gaudy numbers in these pass-happy days. Why do we flock to feature backs? Well, it's all about supply and demand. There are only a handful of needle-moving running backs in the league. Wide receivers are plentiful, and even a mediocre quarterback can put up strong numbers in any given week. Running backs are special because there's a scarcity of halfbacks who carry the ball 20 to 25 times a game.
The same can be said of premium companies. China's Baidu (BIDU) isn't cheap, trading at nearly 50 times this year's earnings and 33 times next year's projected profitability. However, commanding roughly three-quarters of the lucrative search queries of the world's most populous country is an operating advantage that can't be duplicated elsewhere. Baidu's growth is real -- and worth a market premium.
4. Draft with bye weeks in mind
Fantasy football got a bit more complicated when the bye week was introduced. Different teams will have a different week off. For fantasy players, this means that if you only draft two quarterbacks, you have to make sure they don't have the same week off.
There are bye weeks in investing, too. Do you really want to put all of your eggs in one basket? You may love tech stocks, but diversifying your portfolio is the easier path to smoother returns. No matter how opportunistic it may seem to jump on out-of-favor banking giants right now, you do not want to own only financial services companies -- unless you live for risky wagers.
Play -- and Invest -- to Win
So, are you ready for some football?
Don't let a coin toss decide how you invest or how you flesh out your fantasy football team. A little effort now will go a long way later to making you a winner.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Netflix. Motley Fool newsletter services have recommended buying shares of Baidu, Netflix, and Coinstar.
