Based off of our earlier post on how fantasy football relates to the stock market, we are going to review Habits 2-4 and demonstrate how your skills in fantasy football can make you money in the stock market. Habits 2-4 talk about how the best fantasy football drafters need to understand the depth of the positions and the current environment/situation. It isn’t enough to just have an opinion on every potential player. You need to understand every player’s value relative to every other player and the depth of that position as it relates to your roster needs. Just like in the stock market, the depth of available equities and ETFs means you have to have a plan going in. Understanding the depth of the stock market is essential to success.
In football, when you draft, you’re not just collecting as many good players as possible. You’re constructing a roster with finite resources. You have only so many spots, and as we discussed earlier, you need to also understand how easy or hard it will be to replace players in season.
This parallels to the stock market in so many ways. Buying all of the top names in tech is not a solid plan for your portfolio. Sure, they are the “BIG” names that everybody knows. But just like in fantasy football, how many running backs can you play with on a week to week basis. You don’t put all of your eggs in one basket and you don’t draft 10 running backs. The same is true in the stock market where you diversify your portfolio to improve your chances of success.
Habit 3 is “They know the one big secret of fantasy football.”
At a fundamental level, fantasy football is entirely about minimizing risk and giving yourself the best odds to win on a weekly basis. That’s it. That simple. That’s the big secret. I can’t predict the future. Neither can you. Neither can anyone else. So all you can do is minimize risk, give yourself the best odds to succeed every week, make the best call you can in the moment and let the chips fall where they may. Always ask yourself … what’s most likely to happen?
That was a statement about fantasy football but it is also a fundamental truth to the stock market. No matter what expert you listen to, the best way for you to win is to minimize your risk and give yourself the best odds that you can. This requires knowledge and preparation. It also requires finding that voice that provides you “real” facts, not stories.
Habit 4 is “They recognize this fantasy football season will be vastly different from any other by a significant margin.”
Playing a season in a world where this virus exists is going to be very different from any season we have ever experienced. With so much unknown and unknowable, let’s start by eliminating the unknown things we can get rid of.
While this statement is talking more about Covid-19, we have to think something similar when it comes to the stock market. There are always unknown news events that happen. And this events can cause huge fluctuations in the stock market. The best thing we can do is eliminate as much as unknown as we can. And this goes hand in hand with the prior habit where we attempt to minimize risk as much as possible.
All of these habits demonstrate why understanding the depth of the stock market is so important as well as understanding our current environment.