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Investing Lessons Learned from Fantasy Football

 

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Fantasy football is one of the most polarizing things on Earth.  One on end you have people who are deeply embedded in the culture.  They have been playing in multiple leagues for years and have parties commemorating the start and end of the seasons.  It’s a way of life.

On the other end, you have those who think that those who participate in fantasy football are delusional and wish they were real athletes.  I’m somewhere in the middle, as I like playing but don’t do it with a lot of fanfare.  And I do wish I was a real athlete.

For those readers who are uninitiated in the ways of fantasy football, it is a game for football enthusiasts in which you select a team from the pool of current NFL players.  Based on how well the players do throughout the season, the team with the most points at the end of the season is the winner.  You have to keep track of player performance, injuries and other  league events to make sure you are fielding the best team possible.

This is usually played online nowadays and some league winners get cash prizes while others just get bragging rights.  It’s all in good fun, but there are some hurt egos along the way.

I bring this up because football season has just started, and I have noticed a bunch of similarities between fantasy football and investing.  In essence, they are very similar because you have to actively track how your players (investments) are performing and make adjustments along the way to win the league (reach your investment goals).

Here are some other startling similarities between fantasy football and investing:

Past Performance Does Not Predict Future Results

This is an SEC mandated statement that all mutual fund companies must put in their ads.  It’s a warning to investors that just because a company has done well in the past, it does not mean they will do well in the future.  If investors actually heeded this advice instead of listening to the latest stock tip, then we would have a lot more wealthy people in this country.

After looking at the top fantasy players from year to year, I realized fantasy football leagues should also mandate this statement.  Besides the many off the field issues that can affect a players performance (such as injuries, suspension, personal problems etc), even the top players in the league can have unpredictable results.

If a player has a tougher than normal schedule for the year or just a handful of poor performances, it can affect their results for the entire season.  Just picking the best performing players from the previous year is not a terrible strategy, but it probably won’t get you very far.  Many of those players may not do well this year and you will miss out on those players that have drastically improved their play.

Lesson Learned:  Don’t pick investments based on how they performed last year.  And don’t pick players thinking they will replicate their production from last year.  Look at the whole picture.

Everyone Has an Opinion

I enjoy watching Sportscenter and listening to NFL podcasts, so I hear lots of different views about who the best players are.  Everyone has an opinion on who they feel will be “dud” or “stud” in fantasy football.  And if you listen to more than one person, you will probably get more than one answer.

All sports writers and pontificators believe they “know” who will play great and who won’t.  But as history shows, no one really knows.  If they do get it right, it’s mainly because of the broken clock theory.  Even a clock that doesn’t work is right twice a day.

Sure, there are players like Tom Brady, Antonio Brown and my man Odell Beckham who will likely light up the scoreboard year after year.  But it’s extremely difficult to spot those players that come out of nowhere or to guess who will have a big drop off this season.

It’s difficult, but people will still try to guess.  And the same goes for investing.

Watch MSNBC or any other financial reality show for long enough and you will think the entire stock market is going through the roof.  Or that you should stockpile gold bars since the world is coming to an end.  Or that the latest election will produce disastrous results in the market.  Depends on what will drive ratings that day.

There will be so many passionate opinions that the average person won’t know what to think.  Mutual fund managers will urge you to sign up for their funds, but that may or may not be the right strategy for you.

Do your own research depending on your risk tolerance and investing timeline.  There is no one size fits all answer and that applies to fantasy football and investing.

Lesson Learned:  Tune out the noise.  Everyone thinks they found the winners but most of the time your guess is just as good as theirs.

Don’t Follow the Herd

Every fantasy league has “that guy” who is always wheeling and dealing.  His transaction history is super long and he’s always looking to trade away his players.  He loves being plugged into the latest news and is scouring the waiver wire to find the next big thing.

“That guy” usually doesn’t win the league.  More than likely the owner who picks solid and dependable players who perform consistently will win the league.  There is definitely a little luck involved to do well in fantasy football.  But picking solid players on great teams and staying the course is usually the way to go.

You will have the random backup wide receiver who has a great game and then is picked up that same hour.  He will be the “hot” player that everyone is clamoring after.  But then he might not do much the rest of the season.  All the while you’re consistent player will be racking up points riding the bench.

This lemming mentality plays itself out in the investing world as well.  As soon as some type of international incident happens, the knee jerk reaction is to sell sell sell!  So many people sell that the market takes a sharp dip, and this causes even more people to panic and sell.

Nothing good can come from following the investing herd.  Nearly all hugely successful investors got their money by not following the herd at the right time.  As Warren Buffet (one of those hugely successful investors) says, “Be fearful when others are greedy and greedy when others are fearful.”

Lesson learned:  Don’t pick up a player just because everyone is talking about him.  And don’t invest in a stock just because it is the latest “hot” pick.  Do your research.  There’s a reason the herd doesn’t get great returns.

I love football and I love investing, so I’m probably going to find similarities between them.  But the similarities between fantasy football and investing are so clear.  Now someone should do a study comparing fantasy football performance with investment returns!

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Are Physician Loans a Good Idea?

Recent graduates of professional school are in a unique position.  They usually have high amounts of debt and low savings. Not a good recipe to buy a home.  Almost everybody with high debt and low savings will get denied for a traditional mortgage.

But one thing almost all professional school grads have is high potential income. So a number of banks offer Physician Loans (also called Doctor Loans) geared towards new professionals.  While most of these loans are geared toward those with an MD degree, professionals with other degrees, including myself, are able to take advantage as well.

Nuts and Bolts

I wrote about Doctor Loans in a previous post, but since I’m now a few years into having one, I wanted to revisit the subject.  Here are the key aspects of a Doctor Loan:

Pros

  • Requires little to no down payment
  • Doesn’t require Private Mortgage Insurance (PMI)
  • Doesn’t factor in student loan debt, which is usually high for professionals
  • Will accept a job offer or contract as proof of earnings

Cons

  • Available only to new grads, usually a maximum of 5-10 years out of residency or school
  • Can have higher fees and interest rates than conventional loans
  • Certain types of homes may be restricted
  • Some banks might require the customer open a checking or savings account with the bank

It’s also important to know why banks would offer a Doctor Loan.  Lenders are looking for customers who will make their payments on time and have a good relationship with the bank for years to come.  Professionals usually have high income potential, so they are looking to swoop in and offer mortgages to new grads since they will have a low default rate and more than likely stay loyal to the bank.

My Take on Physician Loans

Now that we have the pros and cons out of the way, let me give you my opinion of the Doctor Loan.  I decided to use the Doctor Loan because we wanted a house after renting for a couple of years but didn’t have the 20% down payment needed for a conventional loan.  By not having at least 20% for a down payment I would have to pay Private Mortgage Insurance (PMI).  This is just an extra monthly payment to the bank that would not even be tax deductible in our case.

After finally finding a bank that offered Doctor Loans for optometrists, I went thorough the usual ton of paperwork required for a mortgage.  I’ve heard some horror stories from others who went through the mortgage application process, but luckily it went pretty smoothly for us.

I ended up selecting a no down payment Adjustable Rate Mortgage (ARM).  While this sounds scary on paper, I believe it was the best decision for us.  Doctor Loan interest rates are usually a little higher than conventional loans, but going with an ARM allowed me to get a rate in line with the average 30-year fixed at that time.

The interest rate on my ARM doesn’t increase until after 10 years, which is a few years longer than we plan to live in the house before selling.  Even if we end up living there a little longer than 10 years, we can still handle the maximum possible payments so it shouldn’t be an issue.

Our plan is to build up enough equity in the house to eventually get a conventional loan on our next home.  The Doctor Loan allowed us to take advantage of low current rates and have an affordable payment.  I don’t regret going with the Doctor Loan, but if we had waited a few more years to build up enough of a down payment for a conventional loan, we might have scored a lower interest rate.

No Free Lunch

Not paying PMI and not having to fork over a large down payment sounds like a good deal, but the advantages of that can be erased if you decide to sell too early or you have to settle for a high interest rate.

So are Physician Loans for everyone?  Absolutely not.  Homes are expensive (taxes, maintenance, homeowners association fees etc).  If you rush into a purchase too fast and aren’t ready for the upfront costs, then a Doctor Loan is probably not a good option.  You would be better off learning the basics of home ownership while building up enough of a down payment for a conventional loan.

Mortgage lenders essentially work like see saws.  They can offer low down payment and no PMI, but will have to increase the interest rate.  If you want a lower interest rate, you should be able to offer a good down payment and maybe even pre-pay some of the interest.

There really is no one right answer.  Deciding if a Doctor Loan is right for you depends on your income potential and how long you decide to live in the house, among other things.  Run the numbers and ask those who have been through the mortgage process to see if it would be a good option for you.

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