4 Ways Fantasy Football is like Penny Stocks

4 Ways Building a Fantasy Football Team is like Penny Stock Investing

Football players celebrating
Leaping football players at night. Kristian Sekulic

Fantasy Football has more similarities to finding high-quality penny stocks than you may realize. In fact, picking the best players in baseball, basketball, soccer, or just about any sport bears many techniques which are in common with spotting winning investments.

Yes, of course, there are differences, but the major similarities are pretty significant.

1.  The Universe:

First of all, you start with the entire "universe," which includes every single penny stock, just as in Fantasy Football it involves every eligible player.

In either scenario, you need to establish the boundaries which that universe entails so that all possible options are gathered before you.  In football, this may mean all players on all NFL rosters. In penny stocks, the universe includes each and every share which is trading for any price less than $5.

2.  The Purge:

The second step is the most important, and it will have the greatest direct impact on your final success or failure.  In this stage, you must cull out all the options you will not be choosing, and since there are hundreds (in football) and thousands (in stocks) of "potentials," the majority need to be quickly and robotically eliminated.

Perhaps in football, you know you will never add a Minnesota Viking to your team, or you can't stand Tom Brady, or there is a possible conflict with off weeks for some of the players...  the sooner, and the more aggressively you cull out the total population, the more time left to look into the remaining options in depth.

In penny stocks, this culling process can be driven by eliminating shares from the lower-quality exchanges (Pink Sheets, OTBQX, etc...), certain price levels, or even entire industries. Each investor has their own reasoning behind each decision, but what matters is committing to your decisions, and shrinking that universe down to a manageable collection of potential investments which you can then delve into thoroughly.

3. The Chemistry:

One of the keys to Fantasy Football success is putting together a team which functions well as a unit.  The one with the best running back doesn't automatically win. Really, it comes down to how your quarterback and running back and wide receivers all work together.  The chemistry of the entire team matters so much more than the caliber of any one or two individual players.

In the stock market, we call this the portfolio.  Does the collection of various shares you hold compliment your overall goals for investing and are they appropriate for you skill and experience level?

4. Along Comes Luck:

With sudden season-ending injuries, demotions, free-agent signings, and coaching changes, you must understand that a certain degree of luck comes into play. (I'm not talking about quarterback Andrew Luck, I'm talking about good old-fashioned four leaf clover fortune or fate).

The same holds true with penny stocks. Yes, the harder and smarter you work, the luckier you will get.  However, there is an aspect to any speculative investing which will be out of your expectation, control, and generally detrimental or fortuitous.

Simply put, any time you are trying to identify the diamonds from among the mountain of coal, the process will be the same.

 Identify the Universe, Purge the Universe, then build the team (or portfolio) which best suits you.  And hope that luck, when it comes, favors you.