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Time is ticking down to the start of the 2013 NFL season, and that means that fantasy football leagues all over the country have, or soon will have, held their drafts.
While it may be surprising that I'm writing this on The Motley Fool -- an investing website -- I think that fantasy football can make you a better investor. Here are five reasons.
1. Hunting for hidden gems.
The big win during a fantasy football draft isn't picking up Detroit's Calvin Johnson in the first round. He's a solid first-round pick, and everyone already knows that. The real upside for your team comes from getting the next Alfred Morris -- a low-round player who has been overlooked, but has a lot of upside.
In the stock market, the Googles and Coca-Colas of the world can do very well for you over time. But you'll often find much bigger upside in smaller, lesser-known companies like Buffalo Wild Wings (NASDAQ:BWLD), which has clobbered both Google and Coke over the past five years.
2. Don't get too cute
The best players in fantasy football -- the ones that you spent your prized first and second round draft picks on -- don't perform for you if you get too cutesy with your lineup, and leave them on the bench.
Warren Buffett has said that his favorite holding period for a stock is "forever." When you find and buy the stock of a quality, well-run company, the magic of compounding returns doesn't work in your favor if you try to outsmart the market by jumping in and out. Buying and holding works just fine -- ask owners of Buffett's Berkshire Hathaway. That stock is up more than 2,000% since 1990.
3. Get real
OK, so you were really excited about your fourth-round running back pick. You thought you got a great player, and a steal to boot. But it's not panning out. Few rushing yards, and many fumbles, are killing your team.
The answer is obvious if not a little painful: Admit that it was a bad pick, replace the RB and get back to winning.
While the idea of "falling in love with a stock" may sound funny, many investors fall victim (sigh, I've been there). Wooed by their research and hopes for the future, these awestruck investors become blind to very real failings of the company and its management team. But just as it's important to know when to hold a stock forever, it's likewise important to be able to admit a mistake, and sell when a buy doesn't work out.
4. A good mix
There's not much upside in having a team of supposed All-Pros -- and if you have such a team, you've probably made some severe compromises along the way. And you probably don't have a great shot at winning if your team is all shot-in-the-dark hopefuls.
A solid fantasy football team combines a bit of both: Proven veterans that score week in and week out, along with rookies and sleepers that can break out and deliver.
Most investors will find the same works with their portfolios. Procter & Gamble (NYSE:PG) and Target are large stable companies that can deliver year after year, but are unlikely to offer massive upside. But combine them with a Tesla and Stratasys, and you can strike a balance between safety and upside.
5. When the market gets it wrong
Despite being an incredibly talented running back, the Viking's Adrian Peterson was drafted relatively low in fantasy football in 2012, thanks to undergoing knee surgery prior to the season. He ended the season as the top fantasy football running back.
Whether we're talking stocks or fantasy football, sometimes "the market" offers up a deal that appears to be too good to be true. Sometimes it is. But if you keep your eyes peeled and your wits about you, you'll undoubtedly find times when those deals really are that good.