What does fantasy football have to do with investing?
It teaches you to avoid Nick Foles-like fund money
managers, whose one-time Super Bowl achievements
often decline the following year.
And it might also suggest that you avoid Tom Brady-like
fund managers, whose six Super Bowl rings sure
With the start of the NFL season, both are worthwhile
reminders. But let’s examine the latter, because it’s a
mistake many investors fall for – selecting the star
manager every year.
Fantasy football is a virtual competition where you
create a team by compiling star players from other
squads. You make trades during the season,
attempting to bolster your roster and improve team
standings. A critical aspect in fantasy football is to
select players that should do well, before they do.
Most fantasy footballers would have loved to have
drafted all-pro and NFL MVP Patrick Mahomes,
quarterback for the Kansas City Chiefs for last year’s
fantasy football roster. Yet who could have predicted
his performance last year?
And how many people were hoping to draft Andrew
Luck this year (he retired just before the start of the
season at the age of 29 by the way)?
Selecting Tom Brady as quarterback
That brings us to Tom Brady, quarterback of the New
England Patriots. He has led his team to six Super
Bowl rings thus far in his sure Hall of Fame career,
which is the most of any quarterback. Surely you
would want him as your signal caller for your fantasy
Here’s how fantasy football can teach us about
Selecting Tom Brady as portfolio manager
Many investors competitively attempt to beat the
market, using asset managers touting good past
performance. The investors believe that these
managers will continue to do well going forward. Yet
the odds are stacked against the investor who
chooses an investment manager to generate higher
returns by actively managing the portfolio.
That strategy often means frequent buying and
selling, compared to simply and passively investing
into the overall, broad-based markets with vehicles
that track benchmarks.
Fantasy footballers, like fantasy investors, often
choose Tom Brady-like managers, with past
performance that has exceeded market returns for the
most recent year. Yet if and when that manager does
not perform well, many fantasy investors shout, “Boo”
and look to replace their once revered manager with
To be fair, some active money managers will deliver
above-market performance. The problem is you
cannot predict, nor can anyone guarantee, that a
particular winning streak will continue into the future.
Active vs. passive
Statistics show that in any given year, upwards of
two-thirds of active managers do not outperform the
passive, index benchmarks that they are measured
You may believe in your ability, much like fantasy
footballers, to select and maneuver among active
money managers. You may think you can consistently
beat the market, instead of simply pursuing an asset
allocation-based strategy and passive management,
which attempts to closely track market returns. If so,
you must also believe that:
Financial markets are not efficient and stocks
are often mispriced.
Successful, active stock managers exist and
will continue to demonstrate their superiority in
terms of identifying mispriced stocks and
timely buying underpriced and selling
You are able to identify these Tom Brady-like
managers and/or discover future stars in
advance, while also knowing when to trade
Since the odds are against selecting and switching
managers optimally, there is a compelling argument
for allocating one’s portfolio via a passive, diversified,
Reality trumps fantasy
Please note, of course, that this thought is intended
for general information only. For specific investment
advice tailored to your individual situation, you should
consult your financial advisor.
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