How Fantasy Football Is Like Managing Your Money

Can fantasy football make you a better investor?

I am a big fan of fantasy football, which is close to a $9 billion annual business with almost 40 million Americans playing every year! After you join a league, you draft real NFL players for your team, and then you use their in-game stats to compete online against the other folks in your league.

Each week, you set your lineup and score points based on the actual performance of the players. Just like investing, getting started is easy, but long-term success is much more difficult to master. Although many people play for entertainment value, the skills you learn can actually help you become a better investor. How? Here are a few principles that can help you build a top-notch team and investment portfolio!

Know your plan

You don’t go into a draft without a plan. Whether it be to choose certain positions first or certain players regardless of position, you need a clear idea of what you want to accomplish. Managing your money and investments is the same. You want to clearly write down your financial goals and know what you want to achieve.

Past performance doesn’t guarantee future performance

Doing your research is an important component of picking the right players and maximizing the talent on your roster. This is the same as picking an investment. Just because the player or investment did well in the past doesn’t guarantee future success. A player can get injured, a company may have to recall products, or the stock’s performance may be a short-term stroke of luck.

Robert Griffin III (known as RG3) was the 2011 Heisman Trophy winner and second overall pick in the 2012 draft by Washington. He set records for the highest passer rating by a rookie quarterback (102.4) and highest touchdown to interception ratio (4:1), becoming NFL rookie of the year. But after a gruesome injury, he was never able to regain his form. He was one of the few players who was so highly valued going into drafts and ultimately produced so little for owners. So what is the best way to hedge against this problem?

Diversification is key

You can’t win with just one high-performing player. You also don’t want players who score a bunch of points one week and none the next.

The best strategy is to have core players who are dependable and a few supporting players who are high risk but high reward and have the potential to do well. A great investment portfolio also has different investments playing different roles. You don’t want all your eggs in one basket. This way you maximize your returns and minimize your risks.

Cut your losers and let your winners run

When one of your players consistently underperforms or gets injured, you don’t keep him in your lineup hoping he will get better. You make a trade or find a player who can replace him quickly. For your players who are doing well, you don’t put them on the bench; you let them loose to rack up points.

Your investments are the same. It's not uncommon for investors to hold losing stocks, hoping for a turnaround, only to see them fall even more. You want to cut your losses and move on and not sell your winners too soon.

Check your emotions at the door

I have been a big 49ers fan since I was young and have a big emotional attachment to them. I tend to overvalue players from the 49ers hoping they will do well, only to be disappointed. Just like picking a stock, you want to look at players based on their perceived value, not emotional value.

Also, watching the ups and downs of too much fantasy football can drive you crazy, the same goes for investing as well. Just because Tom Brady has a bad week doesn’t mean you should dump him since he has been good for so long. It's about winning the entire season, not just one game. Investing is the same, look at the big picture!