Managing Your Portfolio Like Your Fantasy Football Team
Think about the emotions that get involved in how we manage our fantasy football teams and how these types of decisions can and do translate into how we manage and mismanage our portfolios. Maybe the best part of this analysis is that monitoring our investing habits can probably teach us to be a better fantasy football managers!
Pitfall 1.) Scouring the waiver wire for a huge performer
Sometimes we pick up an unproven quarterback to start because he has great receivers and is being hyped up by the so called experts. This move is like buying a penny stock that has just claimed to discover a huge oil or gold deposit. The noise is usually louder the the substance and chances are both the stock and the QB will disappoint.
Pitfall 2.) Adding and Dropping Players based on Short Term Performance
Picking up the best running back or defense of last week and dropping a steady performer who may have had one or two bad weeks is a common move. It's the stock market equivalent of selling low and buying high. Its like selling Altria and its fat dividend becuase it is flat for a month to buy Tesla because it popped 5 points. Chances are that over time, the journeyman who ran for 130 yards against the Bengals will come back down to earth. In the same vein, the hot new motor company trading at 12 times book value is likely to blow a gasket down the road. Stick with the tobacco company that will keep rollin' out that fat dividend. Also maintaining a huge cash position provides a nice margin of safety if the price per share falls. Unfortunately, Tesla's burn rate doesn't inspire the same confidence as Altria's burn rate, which generates hoards of cash flow.
Pitfall 3.) Holding onto a player for what they have accomplished and not what they will achieve.
Brett Farve was a great player in 2009 and long before. He is truly an all-time great. The problem is, he is the equivalent of holding Yahoo in the year 2000. Wonderful success, great results over a long period of time, but no upside to speak of in the future. Unfortunately, many of us held onto Farve this year expecting the magic to be only a week away. I know I did. I'm sure many of us held Yahoo through the dot com pop as well. We should have been sellers of both before the mystique wore off. Hopefully, for Vikings fans, the departure of Brad Childress as Vikings coach won't land the team in the same spot a Jerry Yang-less Yahoo ended up in. Then again, maybe the Vikings can sell out to Paul Allen for $33 a share.
Bottom line, who do we want to invest in today? I'll put my money on Aaron Rodgers. He is like Google. Solid results, big upside. Google would be a high fantasy football draft pick.