Picking assets with a budget, carefully planning future moves, having a watchlist and making changes when required. All of these could relate to people running their portfolios, but could equally describe the more than 11 million people who played fantasy football last year.
These similarities were highlighted by Schroders' head of strategic research, Duncan Lamont, who said “you might be surprised there are a number of parallels between how people approach fantasy football and how they approach investing”.
Below, he shares the styles and behavioural biases of fantasy football players that apply to investing – and suggests how to overcome them.
The tinkerer
Do you constantly tweak your selection – incurring points deductions (additional costs) for making so many transfers – because you’re convinced they’ll more than cover the cost?
Then you’re probably a tinkerer. But, according to Lamont, few can pull this off.
“Some fantasy football managers – and investors – can make this work, but it doesn’t work out well for most of us, and those that may succeed have to put in a tremendous amount of effort to do so,” he said.
“How much of your spare time do you want to spend on your fantasy football team/your investment portfolio? If you’re not prepared to make the effort, then rashly making changes five minutes before the deadline every Saturday morning will probably end badly, just as rushed and ill-thought-through investment decisions might.”
The set-and-forget player
Doing the opposite – putting some effort in initially but then switching off – is equally bad.
Some of your players will get injured or fall out of form, others may be transferred abroad, and before you know it, you only have six players in your starting line-up who are actually playing.
The same could be said for stocks and funds but, when it comes to investing, there’s a solution if you’re not prepared to put regular effort in.
“You can outsource that monitoring and decisions to a financial adviser or investment manager so that you don’t have to spend all of your spare time researching the component parts of the portfolio,” said Lamont.
“There’s also a difference between picking a handful of individual stocks and picking managed funds that can deliver broad, diversified, exposure to asset classes. The former compels you to put in a lot more effort than the latter.”
The data junkie
Do you care more about stats and spreadsheets than the players you pick? Do you like building models to follow and make automated decisions?
Chances are you are a data junkie, or a quant investor, and will succeed or fail according to the quality of the model and whether players (and investments) will perform consistently.
But a major risk here is that things often don’t pan out as predicted.
“In the most recent season, teams like Brentford and Brighton that surprised everyone by how well they played and Chelsea, which underperformed expectations, will have busted a lot of models. Leicester winning the title in 2016 was probably the biggest statistical anomaly of all,” said Lamont.
“Similarly, stock market performance leadership changes more often than many people realise. The top performing stock markets or companies in one decade are rarely the top performers in the next.”
The similarities could continue – if you search out teams that are cheap relative to their fundamentals you could make a great value investor, if you build a team that is in a rich vein of form then you’re probably a momentum investor, or if you laden your squad with expensive players for whom big things are expected, you could give growth investing a try.
But while picking a load of Manchester City players might seem like a good idea, given they’ve won the league three years in a row, diversifying your exposure to different clubs (or companies/regions in an investment sense) will make your team (and investment portfolio) more resilient if any go through a tricky patch: Liverpool for a significant portion of last season, for example.
“The fact that the magnificent-seven US stocks of Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta Platforms now make up more of the global stock market (MSCI All Country World index) than Japan, the UK, China and France combined is an astonishing statistic,” said Lamont.
“It highlights that a portfolio which passively tracks the global market may be less well-diversified than many investors realise.”