If you’ve ever watched a hockey game, you’ve probably seen team owners and managers high up in the stands stoically gazing down at the action. Even though they’re watching the same game as many of the cheering fans, the team managers and owners’ view of the action is far different than that of the crowds below them. In the minds of owners and managers, wins and losses translate into real business revenue gains and losses and ultimately portfolio value being created or getting destroyed for someone.
While you don’t have to put on a power suit or practice an emotionless stare, getting into the shoes of a hockey team owner/manager can offer a great window into how to translate team performance into portfolio value. Thankfully, in today’s world there are a number of great fantasy hockey leagues (such as Yahoo or ESPN) that make it easy for users to experience many of the same thrills and spills of managing a team for a whole season. As with the finance world, there is no shortage of stats, analysis and commentary to wade through in order to make a decision. Further, planning and executing trades can be as simple or complex as a league permits.
On the whole, the business of managing a hockey team offers a fun way to learn and apply some of the core principles of investing. This article looks at 3 ways that managing a fantasy hockey team can teach you to be a better investor (and also provide a great reason to spend so much time immersed in hockey for the season).
Lesson #1: Asset Allocation
When investing in the real world, the prevailing wisdom states that portfolios ought to have different asset classes (such as stocks, bonds and cash) portioned out accordingly. As the owner of a fantasy hockey team, your players are your assets. Like a financial portfolio, a hockey team requires a mixture of players each playing a particular role. While financial portfolios have more flexibility in the concentrations of assets, fantasy hockey teams require managing the right mix of players and positions and achieving the right mix of growth (with rookies), stability (veterans), offense (point production) and defense (preventing points against).
Lesson #2: Risk Management
Injuries, slumps, illnesses, personality clashes, dirty hits, run-ins with the law – there’s a long and unpredictable set of circumstances on and off the ice that can sideline a player. Just like investing in the stock market (or any other market), in fantasy hockey there is no such thing as a sure thing. Chasing the high flying players (stocks) at the expense of having depth and stability on the bench (portfolio) means that one unfortunate incident can seriously impair the entire portfolio’s performance. In fantasy hockey, however, the losses are nowhere near as catastrophic as those in the real world.
Savvy investors understand that risks are ever present and so they also understand that in order to successfully invest, risks have to be minimized (where possible). Equally savvy fantasy hockey team owners know that having several players who are strong in a particular category (such as faceoffs or goal scoring) helps to underwrite the risk of one really great player in that category getting injured.