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Lindley Estes is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.
Maybe we should have fantasy investment leagues
MILLIONS OF fantasy foot- ball addicts across the country are getting ready for the annual end-of-summer tradition–draft day.
I am among this sorry lot, which will spend much of the next four months glued to the TV set and computer every Sunday while tracking their fantasy team(s).
It’s generally time poorly spent. Nonetheless, the pursuit has left me with some interesting parallels between fantasy football and investing with which I will now regale you.
Just as fantasy players throw around terms such as "flex spot," "bye week" and "handcuff," investing has its own language. So for you fantasy football players who have never really understood investment language, here’s a primer in terms you’ll grasp.
- Value investor: This is a school of investors who buy stocks of cheaply priced companies that have unfairly been cast aside by others. Warren Buffett is perhaps the most famous example.
Fantasy translation: Fantasy players with this mind-set are the ones who try to snare overlooked "sleepers" late in the draft. Typically these football players have some kind of issue, such as a lingering injury. An example this year is Marvin Harrison of the Colts.
- Growth investor: This type of investor tries to find companies poised to grow at breakneck speeds. Less focus is put on factors such as price-earnings ratio, and more is placed on studying the marketplace to see which companies will be tomorrow’s leaders.
Fantasy translation: Owners in this school of thought usually draft a squad of unproven but talented players they think will be the next great thing. Expect this type to take rookie running back Darren McFadden.
- Focused investor: Some mutual-fund managers call their funds "focused," meaning they choose a small group of their favorite stocks and "back up the truck." These types throw around lofty-sounding quotes such as "diversification is a defense against ignorance."
Fantasy translation: Like-minded fantasy owners bet heavily on one team and draft tons of players from there. For example, someone who thinks the New Orleans Saints will have a great offense might take Marques Colston, Reggie Bush, Drew Brees and Jeremy Shockey.
- Diversification: This is the cardinal rule of investing, according to most financial-planning types. They suggest spreading your eggs into many baskets to protect against any one breaking.
Fantasy translation: This type of owner doesn’t have a strong opinion about what teams will be the best. So he’ll pick just one or two players from many teams.
- Hedge fund: This type of investment vehicle allocates assets in a way meant to produce good returns in up and down markets. They short stocks and buy alternative investments such as timber and gold.
Fantasy translation: Probably the best example of the hedge in fantasy football is selecting a good backup running back to go with the alleged starter. No matter which guy gets most of the carries, you’re protected.
I would go on, but I’ve got some important business to attend to. I need to start preparing my draft sheet.