By Sean Somerville, Dolan Media Newswires
BALTIMORE — With 2011 now over, a lot of us are looking at our holdings and assessing what worked well and what didn’t.
There were blue chips that did phenomenally well — way better than we expected — and boosted our profitability. But some of our holdings that had breakout years in 2010 pretty much crashed in 2011.
Now it’s time to re-group, roll up our sleeves and make changes where necessary for 2012.
We’re talking here, of course, about … fantasy football.
On the face of it, this billion-dollar industry has very little to do with the way our families manage their money. The eyes of fantasy players may glaze over when the term “portfolio management” is mentioned. But it turns out they’re managing their own portfolios with every draft, every trade and every game time decision.
With the National Football League season over, we all have to pivot from fantasy football to reality wealth management. Here are some lessons we can take from the gridiron.
• Beating the averages: When you choose a fantasy football team or a collection of stocks or mutual funds, it’s important that you have a strategy for beating the average.
For example, the average passing yards per game in 2011 was about 230. So you want quarterbacks on your roster who outperform that metric. If you had Drew Brees, congratulations. In investing, the key benchmark for large companies is the Standard & Poor’s 500. So if you are a large company investor, you should own securities that you believe will outperform the S&P 500 over your investment horizon.
One question to consider: Are my holdings more like Drew Brees or Christian Ponder? (If you just want to match the average in investing, talk to your advisor about exchange-traded funds that replicate indexes like the S&P 500.)
• Diversification: If you are picking receivers, you probably don’t want to have Wes Welker and Derrick Mason and other “possession” receivers on the same squad. Possession receivers can come up short in terms of touchdowns and yardage. But at the same time they could be productive.
In the investment world, Mason and Welker might be seen as correlated assets, or like owning all bank stocks. So instead you might want to have a possession receiver like Mason, a deep threat like Torrey Smith and a tight end like Todd Heap.
• Tactical moves: It’s halfway through the season and you see that one of your quarterbacks, Curtis Painter, is playing the Steelers, and your other, Cam Newton, is playing the Vikings. Not too much of a challenge here in choosing whom to start.
In investing, the competitive terrain of a company can shift drastically. In the best of worlds, you anticipate that shift and prepare your portfolio. But when an online bookseller reports a drastic increase in revenue, you might decide that you should sell shares in that brick-and-mortar bookstore chain.
• Course corrections: In fantasy football, this happens with every new year’s draft. By next summer, the NFL rosters will be set and the stock of some players will have risen very high and the stock of others will have plummeted.
But in investing, there is no new draft every year. So it’s incumbent on you to review your holdings, figure out what’s gone well and what hasn’t. Based on what you know now, you have to choose the best portfolio for yourself going forward — not necessarily the one you had last year.
When you finally get to making changes, you may have to give your once-favorite fantasy player or stock this tough news: “Coach wants to see you. Bring your playbook.”
Sean Somerville is a financial advisor with RBC Wealth Management in Maryland.