What does fantasy football teach about investing?

Hello everyone! With this year’s Premier League Season right around the corner I’ve been compiling my entry for the annual Fantasy Premier League competition. It occurred whilst setting my line-up that there’s some lessons from the world of finance in these very pivotal choices, and hence welcome to my slightly tongue-in-cheek guide to what fantasy football teaches us about investing…….

As ever – our normal note that we take care with what we write on this site but it is not official “financial advice” and you need to consider if any financial product is right for your circumstances. We always advocate doing your own research. If you’re in doubt about anything, it’s worth consulting a regulated and reputable financial advisor who can provide tailored advice built for you.

What is Fantasy Football?

Ok, first of all just a quick explainer for those who haven’t come across it before or are used to American style fantasy football model. With Premier League Fantasy Football you choose a team against a £100m salary cap – so if you’re picking the star players, it requires compromise elsewhere.

Player prices also change during the season – so if someone is performing well their value shoots up, given your more options for your team. And if they perform badly, well, that can be a difficult position to get yourself back from.

Investment Lessons from Fantasy Football

Diversification is really important

Whilst Fantasy Football forces you to diversify to some degree by allowing a maximum of 3 players from each team, not going further and therefore tying yourself to any single team/investments fortunes can prove dangerous.

Whilst gearing yourself towards a good team can of course be great when that team is “on a run”, anyone who had a bunch of Liverpool players in the mid-late season last year when they went through something of a collapse will know that it hurts when that team stops performing.

Anyone who’s dealt with a volatile investment portfolio will know the importance of having a good mix of stocks over the long term to help insulate yourself from too many sudden up-down shocks over steady growth.

Value Investing often works

When you look at the successful fantasy football teams they’ve often identified the players which are relatively cheap at the beginning of the season but still exhibit strong performance relative to their cost. As the price of these players then tends to go up, this successful bit of investing then allows much more flexibility in the late season.

This matches the origins of Warren Buffett’s successful value investment strategy – trawling through accounting information to find companies where the underlying assets of the business aren’t reflected in the stock price, having the confidence that will correct in time.

Harry Kane and Mohammad Salah are Tesla Investments

Like Tesla, Kane and Salah have been one of the best performers over the last couple of years. Also like Tesla, they’re now extremely expensive and difficult to justify purchasing with any real sense of value being there even when you acknowledged they’ve done great things.

Having said that, both Tesla and these guys somehow seem to defy gravity – even when pundits question if they’ll continue to perform! Can it continue to last?

Illustrating investment value with Harry Kane's fantasy football price vs. other forwards.

Knowing the detail of small company investments can pay off

Another strategy that’s consistently been a winning one both in investment and fantasy football is identifying smaller stocks/players before others do.

In fantasy football terms, this tends to be from awareness of players from the promoted teams who were in the Championship last season and how they might adapt to the big leagues. Last year, Patrick Bamford was the main man for this, demonstrating consistently incredible performances for the promoted Leeds United.

In investment terms this means doing your research on smaller companies (who might be on the AIM on smaller FTSE markets) and have less coverage – putting in the work to identify those with a strong business model, good metrics and lots of potential to grow and move into bigger markets. This is the principles of growth investing (more on growth investing here).

Even good stocks can get hit for no reason in the short term

The problem with having a relatively short term season is that something an unexpected shock can happen with a player doing well. For me this was Danny Ings of Southampton last season – consistently doing well right up until he was hit by the injury bug.

Ings will hopefully be good again this season, but his injury knocked him out for the entirely of last season. One of the principles of this site is that we advocate investing for the long term – wider unexpected market shocks completely unrelated to the company can sometimes hit even good investments and really hit a short term return.

You can find value in an X-Factor for an investment or player

Sometimes you find players which on paper there’s aspects that don’t look great – they play for a weaker team that doesn’t get many opportunities for example.

However a canny manager can identify that in some cases, it can still be worth grabbing these players because they have some unique opportunities to pick up points because of their role – for instance someone instrumental in taking corners or penalties.

The same applies to investments – sometimes you identify an investment that initially just looks ok, but there’s something in a business model that presents it with an advantage that no-one company can match, boosting it’s value.

Any questions?

Have you used any investment techniques in setting up your own fantasy football team, or do you have any hot tips on what players you think are worth investing in this season? Let us know in the comments below!

And that’s it!

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