Investing is no game
I started investing on the stock market in 2012 while studying. My first investment was a modest R500.
Not much, but a start.
Ten years later and I’ve learnt hard lessons about the global economy and human psychology.
That’s because when you buy shares in a company, you have real skin in the game.
You’re no longer a passenger in the economy and have to pay real attention to the news, do research and watch market trends.
If you don’t, you’ll probably lose money.
That’s why the phrase “playing the stock market” gets the hair on my neck standing on end. Investing on the stock market ain’t no game.
But it is a lot like another game I’m interested in – fantasy football.
To my surprise, I realised recently that winning at fantasy football actually involves putting into practice all of the things you’re usually told to do when you start investing.
Fantasy Football
Here’s a quick overview of how fantasy football works.
The rules (of the Premier League version) are fairly simple:
- You have a fixed budget at the start of the season to buy and manage a squad of 15 real life league players.
- You can buy and sell players throughout the season as long as you don’t exceed your budget.
- Each week, players get points based on their performance in real life – the better players perform in their real world fixtures, the more points they get.
- At the end of the season, the manager with the most points wins.
Easy enough.
But things get really interesting when you drill deeper into the mechanics of the game.
Player prices fluctuate throughout the season based on the number of managers buying or selling that player at a given time.
Players who play often and play well in real life are more in demand in the game. And the higher the demand is for a player in the game, the more their price increases (and vice versa).
This means managers are rewarded for owning players who perform consistently well in real life.
In order to win, experts spend ages trying to find undervalued players who out-perform their price. If you can do this consistently throughout the season, you’ll generally do well.
Starting to sound familiar?
Picking the right assets
No room for favourites
A common mistake managers make is choosing their favourite real life players in the game. Unless they also happen to be good fantasy football assets, that’s probably a bad strategy.
It’s a bit like holding on to your favourite share for too long (maybe it’s paid you good dividends in the past?).
When the time comes to sell, you need to be unemotional.
There’s no room for favourites.
Blue chips
Like with investing in blue chip stocks, there are certain players (assets) that have proven their ability to consistently score points over the course of a season. Those assets are the most expensive, but also the most likely to generate good returns.
They’re the ones you want to form the core of your team.
In fact, a 2021 study1 found that top performing managers had a common core of popularly owned players – the so-called template team. The convergence in their behaviour highlights that sometimes it does pay to follow the crowd.
It’s the same for stock investing.
You could probably do worse than having a mix of blue chip stocks as the core of your portfolio.
“Be greedy when others are fearful”
Warren Buffett is often quoted as saying that wise investors are fearful when others are greedy, and greedy when others are fearful.
It’s the same in fantasy football – if a good fantasy football asset goes through a dip in form, players are likely to sell that player en masse.
That might be a great opportunity to pick up a good asset for a cheap price.
Information asymmetry matters
The best fantasy football managers spend hours poring over player data and statistics.
They try to calculate which players are statistically most likely to perform well. They also look out for the latest news on injuries, team selections and fixture difficulty when making strategy decisions.
It’s the same reason that investment banks and hedge funds hire teams of analysts to comb through piles of data.
Having more information than other players in the game gives you an edge.
Making data-driven decisions helps you win.
Irrational actors
Once you’ve figured out a strategy that works for you, the really difficult part is sticking to it.
The best fantasy football managers are able to stick to strategies that work and know when to switch them by remaining rational and unemotional.
It’s the same with investing.
In fact, one of the central assumptions of neo-classical economics is that individual actors will only make decisions based on rational calculations.2
Human experience teaches us that this assumption is wildly flawed.
Skin in the game
Nothing I’ve said so far is new or groundbreaking.
In fact, they’re well-known investing principles taught by every source of conventional financial wisdom.
The irony for me is that in the time I’ve invested on the stock market, I’ve failed hopelessly at putting them into practice consistently. It’s not because of a lack of knowledge or awareness, or a lack of trying.
It’s just really hard.
By contrast, doing all of this when playing fantasy football is easy. Natural, almost.
Why? You have no real skin in the game when playing fantasy football.
It’s very easy to be rational and unemotional when you don’t stand to lose or gain anything by the decisions that you make.
Fear and greed don’t cloud your judgment.
You don’t get distracted as easily by noise and others’ opinions.
It’s partly why the best professional investors are able to make the kinds of risky decisions they do – it’s very rarely their own money at stake.
It’s the same reason why it’s generally a bad idea for lawyers to represent themselves in court. Or for doctors to operate on friends and relatives.
Would the best fantasy football managers make good investors? Probably not. At least not if their own money was at stake.
It’s clear that luck and chance play as much of a role as skill when it comes to winning at fantasy football and investing.
But, the biggest lesson fantasy football has taught me about investing is that it pays to stay calm and let data drive your decisions.
Having skin in the game makes this much harder to do, but it also makes it that much more important.
**PS: In case it’s not clear, I’m not a qualified financial advisor and nothing in this article is intended to be investment advice.
1 Study available here: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0246698
2 Rational choice theory tells us that rational actors behave in a goal-oriented, reflective and consistent way (across time and different choice situations).
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