Hal Cook, senior investment analyst, Hargreaves Lansdown: “Fantasy football managers will be looking back on a season of some great team selections, alongside some that can only be described as absolute clangers. You can make good decisions as a fantasy football manager and still do badly, particularly over the short term. However, it isn’t all luck. Making consistently good decisions should, over time, mean you score more points. But you won’t do that every week. And this is something that you have to accept. Investing is very similar.
There are some key questions to ask when it comes to both, to help you discover the portfolio of players or investments that works for you.
1. Form or fixtures
Fantasy football: do you buy a player who has scored loads of goals recently or a player with seemingly easy fixtures coming up?
Investing: do you buy things that have gone up in value recently or do you look for assets that may have struggled but you think have potential to rise in value in future?
In both scenarios the ideal scenario is to find a player or investment that has both characteristics, but most of the time there is a trade-off between the two. For fantasy football, I like to have at least some players specifically because they have easy fixtures coming up, regardless of how many points they’ve scored recently. For investing though, my longer-term time horizon means that short-term trading is kept to a minimum.
2. Time horizon
Fantasy football: are you buying players for a couple of games or for the longer-term? It’s usually easier to pick a player with the potential to outperform in the longer term than accurately guess the next few games. Also, if you make lots of transfers you’ll be charged points so your players will need to score more points to make up for that.
Investing: It’s usually easier to pick an investment manager or region that could outperform over 5 years rather than the next 6 months. Investment managers who trade a lot also have higher transaction costs, so your investments need to perform better to make up for the higher cost.
3. Consistent players or explosive ones
Fantasy football: Deciding whether you want consistent mid-range points scorers or those with potential to score a lot of points, but less often, is challenging. A mix of more consistent players alongside some explosive ones is a typical approach.
Investing: This is similar to weighing up investing in bonds (the consistent returners) or shares (the less predictable, but potentially higher, returners) in an investment portfolio. Your appetite for risk will dictate what proportions you want to allocate to each.
4. Valuation versus potential
Fantasy football: In theory, more expensive players will score you more points, as player prices are loosely based on how good a player is. But you simply can’t afford to buy all the most expensive players, so finding cheap players who can potentially do well and avoiding expensive players who might be past their best is important.
Investment: Again, more expensive assets should give you a higher future return in theory. But the art of investing is finding assets that are mispriced, where you look to buy things that are cheaper than their true value and sell those that are more expensive.
5. The right team v the right player
Fantasy football: Being a team sport, it isn’t just about buying the best players. Sometimes an average player in a good team will regularly score more points than a great player in a poor team. When buying a player, you have to consider both aspects and try to work out which is more relevant at that particular time. For example, sometimes owning a defender from a particular team will be important because the team is not letting in many goals, but the choice of defender from that team is less relevant.
Investment: While investing isn’t a team sport, there are huge similarities here. The decision about whether to invest in an amazing company in a declining industry, or a less well-run company in a booming industry can be a difficult one. And sometimes there is a clear tailwind for a region or sector. But you then have to decide whether to select some specific companies within that region or sector, or to just buy a tracker fund for broader exposure to the tailwind.
Overall, there is a surprising number of similarities between fantasy football and investing. The areas above highlight some of the challenges around decision making for both, but unfortunately there is no magic combination of answers that guarantees success in either.”
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