Summary The importance of analogies. Fantasy football’s lessons for lifetime profit. One last word. Everyone loves a colorful analogy. I suppose that is because a well-placed and entertaining analogy provides a more memorable imprint on the receiving brain than a simple statement does. I’m a big fan of melodrama, so it definitely appeals to me. To say “Seeing John Major govern the country is like watching Edward Scissorhands try to make balloon animals” (Simon Hoggart) is much more interesting than saying that you are very displeased with the inept manner in which John Major is running Great Britain (in the 90’s). Because, well, sometimes you just need to say something ridiculous to cut through the mundane. In general, I spend most of my down time reading articles and opinions about two things: finance and fantasy football. Musings on the interconnectivity between two very different things as I did while thinking about colorful analogies, I came to the realization that fantasy football and investing contain many common themes. I’ve been reading Matthew Berry’s Love/Hate (and everything else he writes – Thanks for all you do, TMR!) religiously for years on ESPN, so a few of these will reference some well-known nuggets of wisdom that he frequently drops. Unfortunately, 2015 fantasy football is ending for the year. Perhaps you brought home the bacon this year with a fantasy championship. Perhaps you drafted Eddie Lacy (the Kinder Morgan (NYSE: KMI ) of 2015) and never recovered. Hopefully these things will help with your drafting next year. I know they’ve been helpful to keep in mind while building my portfolio. Without further ado, here are eight lessons fantasy football teaches the investor: 1: Tune Out The Noise Perhaps the most important virtue of a stock picker is discipline. If you don’t have the conviction to stick with your analysis of a company in the face of setbacks, musings, downgrades, and Jim Cramer, you will hamstring yourself for future earnings. Similarly in fantasy football, there is always a lot of noise when it comes to matchups or weather. While these are important considerations, sometimes people will bench a stud because of a matchup (Julio Jones vs. Josh Norman last week), or other such things. You can’t let the overabundance of available information make you doubt yourself. This leads us straight to #2 … 2: Start Your Studs Everyone wants to make money fast. The allure of penny stocks is watching those big percentage gains during heady bull markets. The flip side of the coin is the important part: without concrete earnings prospects and realistic business models, penny stocks are 99.9% of the time just a roulette spin. Investing has risk involved, but long-term gains mean taking on educated risk based on strong fundamentals or viable prospects. Companies with long history of earnings growth and (as a bonus) uninterrupted dividends are your stock “studs”. Your studs are your guys that you can rely on to achieve above-average points week in and week out. When the playoffs come around, the most commonly given advice is “start your studs.” Those guys got you there, and you need to rely on them to continue to perform. Bortles, while not a high draft pick, was a stud, currently 5th among QBs in fantasy points and total yards, and behind only Cam Newton and Tom Brady in touchdowns. What’s in a name, anyway? 3: Don’t Overpay For A Name (click to enlarge) A name brand doesn’t guarantee safety by any means. I think a lot of investors learned that from Kinder Morgan this year, as the largest energy infrastructure and third-biggest outright energy company in the North America saw its stock price lose 61% in six months. Make sure you are doing your thorough due diligence and don’t get caught up in a name. I hate posting the picture above. As a Green Bay native exiled to D.C., putting Aaron Rodgers under that title wounds me to the bowels of my heart. The fact is, the Packer passing game has been a sore disappointment for awhile now, and playing Rodgers in your fantasy playoffs likely ended them prematurely for you. I know it did for my team Davante’s Inferno (on a related note I wish Davante Adams could catch footballs). 4: “Prove It” They say “Buy the rumor, sell the news”. This is the opposite of what a long-term investor ought to do. Realizing short-term gains in this manner can’t hold a candle to unlocking long-time value form a great company that grows earnings. As an added negative, if you buy the rumor and the news contradicts it, you’ll find yourself in a losing position very quickly. Buying and selling frequently is a great way to erode capital. In fantasy football, it’s good to give a player coming off an injury or big-game-out-of-nowhere a week on your bench to prove he is legit. Bishop Sankey, a popular sleeper last year who disappointed, scored 21 points in Week 1. He was likely picked up and immediately started by many. In Week 2 he scored a measly 4 points; in fact, the entire rest of the year combined he has 25 points. Alshon Jeffery (using a Bear to make up for the Rodgers above) never recovered from his injuries this year, and was a huge disappointment when he played. 5: Coaching Matters Every company has a CEO, a CFO, and a slew of other executives that guide the company according to the path they have in mind and the over the obstacles that arise. How those executives view the company and the emphasis that they place on the paths of revenue available to the company has a huge impact on future earnings. In addition, how they determine the best value to shareholders (i.e. buybacks, dividends, M&A, etc.) will impact you directly. A coaching change can have a huge impact on a franchise. With Andy Reid in town in Kansas City, you know that when Jamaal Charles goes down with an injury, he’ll plug in the next guy as a workhorse. Some coaches place more emphasis on certain positions (or the other side of the ball, even), so it is an overlooked point of vast import to know the head coach’s mindset when drafting members or claiming waivers for your fantasy football team. 6: Waivers = The “Bargain Bin” Stocks, like football players, have “floors” and “ceilings”, downside and upside. A well-balanced portfolio, accounting for risk appetite (usually correlated to one’s age), will contain some stocks that have “breakout” opportunities. Favorable macroeconomic tailwinds, business cycle gyrations, and friendly legislation can all raise the ceiling for a stock’s projected capital appreciation. Unfavorable elements can lower the floor, making downside movement more risky. The waiver wire makes or breaks championships. David Johnson was 2% drafted at the beginning of the year, was the player with the highest representation on ESPN championship teams (42.2% owned as reported by Keith Lipscomb). Waivers are where the bargains are; Waiver pickups can swing from a low ceiling, low floor to high ceiling high floor with just one injury to a key starter. 7: Diversify Your Positions Diversification is Investing 101. Spread your investments among different sectors/cap size companies/asset classes in order to maximize return and minimize risk. Some would say that if you can be disciplined while stocks are tanking over-diversification is “di-worsification”, leading to sluggish returns over time. Still, fear is a powerful agent, so having some green among the red can be a huge comfort, and can help one avoid panic-selling. In my opinion, a team should have a blend of top-tier players spread across different positions. I believe having one stud QB, RB, and WR is better than having three stud WRs in a standard league. For instance, taking two RBs in the first/second pick is generally viewed as a “safe play” on draft day. This year that would have absolutely killed you. 8: Buy Low, Sell High (click to enlarge) The most obvious advice in history, buy low/sell high is still the most important. Understanding valuations and being able to part with a stock you have come to love (because of how good to you it has been) is hard to do. Similarly, buying an unloved stock beaten down by news or rumors can be hard, as no one wants to try and catch a falling knife. Being able to judge what “low” and “high” mean in so many unique circumstances is a consummate skill. Every player that is lighting it up will normalize to the mean. Brady was a fantastic draft pick: a Hall of Fame quarterback with a Hall of Fame coach who was ticked off at bureaucratic debate and punishments levied. He had fire in his eyes, and that came out on the field. There came a time where his perceived value was higher than his average output, and that was the time to trade him away for someone with a lower perceived value but higher average value. It’s important to be active in your management, just as it is in stocks. Conclusion Lessons can be crossover between many different media. These eight lessons form a great platform of basic directives for investing, and as a bonus you have some things to think about for fantasy football next year as well! I hope everyone enjoyed the lighthearted article; its important change gears a bit at times. Please let me know how you liked it in the comments. Thanks to Seeking Alpha for letting me go nerdy on two different levels simultaneously.