You spent months preparing for this moment. You've missed backyard BBQs, given up vacation days and blown off the family to devote time and effort to research, analyze and make predictions. And now, you're fairly confident that all your hard work will pay off to make this "your year."
You guessed it — it’s time for fantasy football
At this time of year, Thursday through Monday means only one thing to many Americans: football season is in full swing. Fans are glued to their computer screens from start to finish as they track plays and performances, while keeping a close tally of points related to their well-thought-out fantasy football picks.
This favorite national pastime kicked off in August 1962 when Wilfred "Bill" Winkenbach, an Oakland-area businessman, and seven friends formed the GOPPPL, or the Greater Oakland Professional Pigskin Prognosticators League. Since that fateful day, fantasy football has grown into an international craze attracting more than 33 million rabid fans.
So what does fantasy football have to do with investing?
Beyond the basic logistics of a fantasy football team, the process by which most people evaluate their team each week while preparing for their fantasy draft can be compared to evaluating an investment or retirement portfolio.
Both teams and players are typically ranked using the ‘power rating.’ The more games a team wins or a player scores, the higher the ranking. For example, if the Seahawks defeat the 49ers, and the 49ers defeat the Patriots, then one can safely say that the Seahawks are better than the Patriots. If Adrian Peterson, scores more touchdowns than Jamaal Charles, but Jamaal Charles scores more touchdowns than LeSean McCoy, then Mr. Peterson is greater than Mr. Charles, and Mr. Charles is greater than Mr. McCoy.
The ‘power rating’ is a calculation of strength relative to other teams or players. The investment process we use when investing is based upon the same concept, which is called “relative strength.” You just exchange the teams or players for investments. The better an asset class performs relative to other asset classes, the higher it's ranked.
The same can be said of sectors and even countries. If U.S. equities are up relative to international equities and commodities, it has relative strength. That may sound overly simplistic, but it’s much harder to achieve those rankings than it may appear.
Picking a winner
Fantasy football fanatics use “power ratings” to judge the value of a player or team, while successful investment advisors use relative strength analysis to quantify an investment’s relative strength. The results of the rankings have a propensity to be pretty accurate both in fantasy football and investing. A player or team who enters the season ranked high very often performs as expected, (barring any unexpected injury, of course). As for investing, I like to refer to a report that separates stocks into deciles, ranks them by momentum, then looks at returns.
And guess what? When I've done that in the past, the portfolio with the greatest ascending price momentum performed the best, the portfolio with the second-greatest ascending price momentum performed second best, and so on.
The similarities end there because, unlike fantasy footballers, investment advisors in mid-season can actually do something about ranking information. If Trent Richardson is on your team, you’re saddled with him for the season. If a dog stock or fund is in your portfolio today, you can pitch it tomorrow. That’s because investment advisors who use relative strength are constantly adapting to evolving market conditions by reallocating assets in response to market fluctuations.
All this stuff is good news for investors utilizing investment advisors who employ a tactical allocation strategy based on relative strength and risky news for fantasy footballers who have Trent Richardson on their team.
Roger S. Balser is the Managing Partner and CEO of Balser Wealth Management, LLC with more than 25 years experience. He works one-on-one with individuals to reduce risk in their investment and retirement portfolio(s) to ensure they will not run out of income in retirement. Balser Wealth Management, LLC, 36873 Harriman Trail Avon, OH 44011, 440-934-3114, firstname.lastname@example.org, www.balserwealth.com.