Where investing and fantasy football collide
As another season of the Premier League concludes this Sunday, so does the lesser known, but no less hotly contested, Fantasy Premier League (FPL). For those unfamiliar with the competition, fantasy managers around the world select a team of 11 Premier League players (and four substitutes) for their team within the constraints of a predetermined budget. Players within your team are awarded points depending on their individual performances each week; goals, assists, and clean sheets count positively, while cards and goals conceded detract from their weekly totals. No points are awarded for creative team names, but they are encouraged (Schärholder Value, Groß Domestic Product… you get the idea). By Sunday evening, one of the 11 or so million players around the world will have been crowned the champion.
For the 38 ‘gameweeks’ that make up a season, fantasy managers research players’ statistics and study fixture lists before buying and selling them according to how they expect them to perform given the fixtures that lie ahead. There will likely be a mix of players whom managers hope will perform well this week, and several whom they have bought in anticipation for easier fixtures to come. Furthermore, managers diversify their picks across positions and teams. Starting to sound familiar? FPL managers are investors, and their teams are their portfolios.
To be clear, being an FPL manager is not exactly the same as being an investment manager. Time horizons in FPL are compressed, there are more diversification constraints (no more than three players per team are permitted), and you won’t suffer material financial loss if you do it badly – unless you place last in your league, of course, then the forfeits agreed upon at the start of the season, financial or otherwise, can be severe.
Despite some self-evident differences, one marked commonality is that the two types of manager often exhibit very similar behaviours. In investing we talk a lot about cognitive errors and emotional biases. Cognitive errors are caused by faulty reasoning or irrationality, while emotional biases are less related to conscious thought, and stem more from our inner selves – our emotions, impulses and intuitions. Both are exhibited in abundance in investing and FPL.
Take herding, for example, a behaviour that sits in the cognitive and emotional camps. Investors will quite frequently follow others into an asset because of the illusion of safety that it brings, or a fear of missing out on potential returns. This is often accompanied by a lack of independent research. The dot.com bubble is a prime example, where companies with the suffix ‘.com’ attracted fervent investor interest despite no real evidence of their being able to generate revenue or profit. Herding and momentum is still prevalent in today’s markets – the weight of money that has entered the ‘Magnificent Seven’ in recent years is testament to that fact.
It is equally prevalent in FPL – Manchester City striker Erling Haaland garnered a £15m price tag at the beginning of this season following a bumper goalscoring term last time out. The most expensive a player has ever been in FPL’s history, and managers felt they could not leave him out. Many would have been influenced by the ‘% owned’ statistic that FPL offers. Up at 70-80% owned at the start of the season, Haaland was so widely held that no doubt managers felt safety in numbers. He did score well initially, but heading into the last weekend of the season Alexander Isak has outscored him, and Chris Wood has one goal fewer than Haaland at half the price. FPL also shows the most transferred in and out, fuelling the momentum further. Just as Haaland was bought en masse, he was sold as City hit a bad run of form. Those who had picked the more reasonably priced alternatives were vindicated, and the feeling of safety felt by following the crowd meant managers sacrificed value elsewhere. You might argue this is hindsight bias, another one of those well-known cognitive errors, but there were innumerable managers who wanted to take another route but felt they couldn’t. There is certainly a lesson to be learned there, and not just for next year’s FPL season.
This ties closely into regret-aversion bias. Defined as a lack of willingness to take action for fear that it leads to a negative outcome, this bias leads to inertia in a portfolio and an FPL team alike. An individual may prefer to hold onto an investment (or player) rather than opt to change into a potentially more attractive alternative. In the words of the CFA Institute, individuals place more emphasis on errors of commission (doing something that turns out wrong) than errors of omission (not doing something that would have turned out well). In reality, these should be treated identically. We have all deliberated over buying an asset, or making an FPL transfer, but this inertia defeats any rational reasons for making the change. In both disciplines this inertia is the enemy of progress – you should treat the decision as if you had never owned either and often you will find your decision is different.
Home bias is rife too. Wealth managers in the UK have a persistently high allocation to UK equities, well above their weighting in the MSCI World index. A hangover from the days when the UK made up a far larger proportion of the global index than it does now, this bias is often borne out of familiarity, and a belief amongst UK investment managers that they have an edge in that area. Sure, the UK used to be one of the most influential regions, but other economies are surpassing it and the time has come to shift some of your assets. A lifelong Manchester United fan who is cognisant of his internal biases might begrudgingly trade out Rasmus Højlund, knowing that the game has moved on from his beloved team, and with it the frequent goal-scoring opportunities that a Manchester United striker might have enjoyed in days gone by. He might keep Bruno Fernandes to retain some exposure to his dear Manchester United, but reduce his overall allocation in favour of a striker at a growing club who has better point-scoring prospects.
It is difficult to separate these behavioural flaws from one another, as most play on the same tenets of human nature. The behaviours described here can be difficult to curb, and almost impossible to eradicate completely – especially those more closely associated with human nature. Markets are driven by people and their decision-making, and innumerable tiny biases often inform those decisions. This is part of the reason why we believe in active management’s ability to outperform – there are price dislocations in markets across the world, especially those less well-covered by analysts. Even with 11.2 million potential analysts, albeit most lacking the professionalism and dedication exhibited by their counterparts in finance, the FPL market can still be slow to reflect all relevant information.
So, either in investing or FPL, don’t be afraid to distance yourself from the crowd, be aware of your biases, and have faith in your own diligent and comprehensive research. Attractive long-term returns await – or, at the very least, you might avoid buying the rest of your league a curry.
Please be aware that the value of investments may go up or down and you may receive back less than you invested originally. Past performance is not a guide to the future.
This document contains general information only and does not provide any advice or guidance specific to your personal circumstances.
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