Photo Courtesy: Chicago Tribune
If you haven’t heard – the NFL draft is here in Chicago – upsetting most everyone who works in and around the Loop with street closures and traffic jams.
While the lights will be on here in Chicago, parading the draftees across a literal big stage before they play on the more figurative big stage, most of the work deciding who teams will add to their rosters is done back at each team’s headquarters, in what are called “War Rooms.” The war rooms are packed with statisticians, scouts, researchers, coaches, general managers, and owners in some cases – all there to see what asset they can add to their team to improve performance.
The folks in the war room pore over performance results (see the movie Draft Day), due diligence reports, referrals, professional rankings, historical pick analysis, and more. They aren’t just looking at recent performance. They’re trying to make a decision on the long term viability of their investment (you have to remind yourself we’re talking about people here). There dozens of people involved in the process over many months, all for what amounts to an investment of about 10% of their portfolio.
Sound familiar? Sure does for investors, who are holding their own little asset class drafts every day of the year – analyzing different investments to see if they fit on the team, if they’ll get along with management, and analyzing how much they’ll cost. The goal, better performance. Similarly, while some teams in the draft are looking to add satellite pieces to already solid core portfolios (New England, for example) and others are hoping to pull out of a streak of poor performance with some game changing talent (like our beloved Bears..); investors are searching for many different things in the draft.
Some are after a quarterback who can add some pop (returns) to the portfolio. Some are hoping to improve their defense with non-correlated investments in case this is a particularly hard year in the division. Others need building blocks along the offensive line to add income. And then there’s always the crazy picks like an Australian rugby player or the investment equivalent.
But where the NFL teams have an army of experts to help them decide on the best course of action for improving performance, most investors don’t put in the same time and effort into every investment they make. Most investors are either the talent scout, GM, coach, trainer, psychologist, and play by play analyst; or the ultimate hands-off owner who turns it all over to a trusted GM (investment advisor) – meaning in both cases there isn’t the bandwidth or desire to truly do the deep dives necessary. And while NFL teams may have a few hundred players on their draft boards, all of whom have been thoroughly vetted beforehand – investors have a few thousand draft picks to choose from – most all of them which are crying out ‘draft me, draft me…’ 24/7.
Here’s the catch – investments don’t come off the board like NFL prospects do. Multiple investors can all pick the same player and have them play the exact same spot for the exact same money (we’re sure Cleveland fans would love to just copy New England’s picks). This is both a curse and a blessing. It’s a curse in that we’re often been duped into following the picks of so called experts, and subject to a herd mentality where everyone jumps into and out of certain investments together, creating overvalued prices and volatile swings. It’s a blessing, because if you’re good enough (or have a good enough staff) to pick out an asset (player) that will do great things for your portfolio (team); you don’t have to be first to get there. You don’t have to have the first pick to grab Peyton Manning. You can grab him in the 30th round.
So sit back and enjoy the spectacle that is the NFL draft – you just might recognize some of the effort that goes into finding the right assets for your portfolio.