Don't take the fantasy football approach to investments

26 March 2018

Hello, my name is Hal Cook, and for the purposes of this article, there are two things you should know about me:

  1. I am an Investment Analyst for JLT
  2. I am a Fantasy Football Manager

So when my fantasy football team weren’t ‘doing a Man City’ at the top of the table, I decided to apply the skill I use in my day job and see if I could make my way up the league table.

I started to spend some time analysing my fellow managers. To say I ‘got my geek on’ is an understatement – I could write an essay on the subject now! However, for the purpose of this article I will concentrate on one of the areas of my analysis: how many player transfers a manager has made (management activity) and how this correlates to their performance.

I came to two conclusions.

  • Those managers who exhibit notably lower management activity to the peer-group average, tend to underperform. This can be explained by players in real life being dropped, injured and suspended, resulting in not accruing any points and acting as a lag on the overall performance of the squad. Logical, explainable and with little relevance to anything other than fantasy football – these managers either have never been that bothered about the game, or have given up for the season due to a poor start.
  • For those managers who exhibit higher than average activity, there is no correlation to performance (other than they outperform those managers towards the bottom of the activity table). This is more challenging to explain but it is likely that FOMO (or if, like me, you are over the age of 30, ‘Fear Of Missing Out’) is a factor. Every week, those players who performed well during their previous game(s) find themselves towards the top of the transferred-in statistics for following week. Effectively, managers are chasing players that are perceived to be in good form and hence will continue to score lots of points – they fear missing out on the points of players they do not own.
    The result is that managers often buy players who simply got lucky and hence do not continue to score points. Furthermore, in order to transfer players in, they have to drop players, and are likely to drop those who have not done well over the last few weeks.  Sounds logical, right? However, I cannot begin to estimate the number of times I have heard a fellow manager say “…and you’ll never guess who I dropped last week? Yes, that guy who scored and got an assist! He hasn’t done anything for weeks!!! Typical!”

Sometimes, patience is a virtue, and as a wise man once (often) questioned: “Is this just trading for trading sake?”

Ultimately, the managers at the top pick players who are more likely to score points in the coming games, as opposed to picking those players that have done well over a similar period. The impact of this on management activity is dependent on the squad held at the time, and hence management activity is variable and uncorrelated to peer-group outperformance.

OK, so what is this all about?  Well, clearly there are more similarities between being a fantasy football manager and making investment decisions than you might have suspected.

Investors should at least be aware, if not wary, of FOMO and how it might influence their decision making. They should base decisions on sound, independent research, where the due diligence process looks at more than just performance. After all, they should all be familiar with the  following statement:

Past performance is no guarantee of future results.

For more information about how our independent research team helps our clients to avoid those Fund Managers who simply got lucky, contact my colleague Darryn Lake, Chief Investment Manager: Darryn_lake@jltgroup.com

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