Top 3 Investing Lessons From Fantasy Baseball

I just participated in my 20th annual fantasy baseball draft over the weekend. Talk about an intro that puts people to sleep! Don’t worry, I won’t bore you with the details of my picks (I’ve found that nobody cares). However, I can’t help but notice the investing principles contained in the process of selecting the players for my team. Here are the top three takeaways from the weekend.

1. Focus on Consistency

Build a team/portfolio of singles and doubles hitters, while leaving room for the occasional home run. When selecting a hitter, I prefer to load my team with guys who make contact, get on base, and can steal bases. Consistency is key in both fantasy sports and investing. If I can get enough of those guys, I can get one or two swing-for-the-fences power hitters who strike out a ton. When constructing a portfolio, you should focus on consistency, limiting drawdowns, and allocate a small percentage to those potential home run hitters. 

2. Don't Swim Upstream

Look for favorable environments. It’s so much easier to swim with the current rather than against it. I’ll start with investing here – examine trends, note seasonal patterns, and don’t fight the tape. None of these things guarantees success, but they sure put you in a better position to succeed if you understand them. In baseball, this means selecting hitters who play in home stadiums that favor hitters, hit near the top of the lineup, and play on a strong offensive team which will open more scoring opportunities. 

3. Growth or Value?

Pay up for growth or search for relative value? The age-old question! It’s always fun to look back at past drafts and say, “what was I *thinking* taking that guy so high?” Chances are, the player in question was coming off of a career year, and the market was forcing people to pay a premium based on last year’s results. Regression is a powerful force and we typically see former first-rounders selected much later in the following years as luck evens out. Conversely, guys coming off of injury or poor years tend to be good value targets later in the draft. Of course, they don’t all work out, but systematically identifying underpriced players pays dividends. Should you pay a premium for this year’s hottest stock or fund? Or should you look for underpriced stocks that are down on their luck? Why not both? A good portfolio is adaptable to what the market is offering.

Bonus

One bonus takeaway: focus on your own process instead of being consumed by the deluge of available information. I’ve often regretted a pick that I’ve made because an industry expert was high on that player. It almost never works! Think about this next time you watch Jim Cramer recommend a stock or read a Barron’s article about the next hot sector. Focus on what you can control. They know nothing about you or your portfolio. 

PS – If you are a league mate reading this, forget everything you just read 😊

Author: David Rath, CMT, CFA

Questions or comments? Shoot me a line.