What the NFL Draft can Teach us about Investing

Chicago NFL Draft Day 2016Photo 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.

See also:

A Football Fan’s Guide to Investing

Finding The Next Tom Brady for your Portfolio

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.